The sweltering record heat in the Northeast has brought up fears of heat stroke and other related illnesses. But there is another fear that may be even more serious - the possible failure of the country's power grid as temperatures rise.
On July 6, the electricity demand in the East hit levels not seen since the summer of 2006 and for the most part, the power grid held up well. The fact there have not been any major blackouts along the East Coast could be attributed to billions spent by the power grid companies over the last decade to prepare for higher demand. The question is whether what they have done is enough. The short answer, in my opinion, is no - more upgrades are likely to be required. The good news is, this could mean opportunity for investors.

IN PICTURES: 20 Tools For Building Up Your Portfolio

All-In-One Grid Investment
If investors want to gain exposure to the entire power grid sector, one of the best choices is the First Trust NASDAQ Clean Edge Smart Grid Infrastructure ETF (Nasdaq:GRID). The ETF invests in U.S. and foreign stocks that are primarily engaged in electric grids, metering and devices, energy storage and management, and technology used by the energy grid sector.

The individual stocks that will be highlighted below are all components of the ETF, which is composed of a total of 32 stocks. Each stock must have a market cap of at least $100 million and a minimum three-month average daily dollar trading volume of $500,000. This helps eliminate any penny stocks from consideration and lowers the overall risk of the ETF. The ETF began trading in November 2009 and after a brief rally it has struggled through a downtrend, but with good support near $26 it could be close to a new buying opportunity.

GRID Components
Quanta Services (NYSE:PWR) is the No.4 holding in the ETF and is considered an infrastructure play in the power grid sector. The company can upgrade, install, repair and give regular maintenance to power grids of all types as well as alternative energy facilities such as wind and solar. Technically, the stock has held up better than the overall market with strong support at the $20 area. Fundamentally, the stock is not overly attractive with a forward P/E ratio of 16.8 and a PEG ratio of 1.3.

EnerNOC (Nasdaq:ENOC) is an energy management firm that offers services that are sought after when energy demand increases. By monitoring the levels of energy needed, ENOC is able to help the companies demanding the energy as well as the utilities through the cycles of energy needed. Technically, the stock has been a leader in the difficult market, hitting a fresh four-month high in early July as the indexes approached multi-month lows.

Power-One (Nasdaq:PWER) manufactures power conversion devices and power management solutions for the renewable energy and communications sectors. One of its products converts energy generated from wind or solar into usable grid power that can be used in residential and commercial settings. The stock has been on a tear in 2010, up 75% through the first week of July. With a forward P/E ratio of 15.85 and a PEG ratio of 0.59 it appears the stock still has more room to run. A breakout above $8.50 would represent a major buy signal. (For more, see Move Over P/E, Make Way For The PEG.)

SatCon Technology (Nasdaq:SATC) is the smallest stock in the article, a true micro-cap stock with a market cap of only $211 million. The company is similar to PWER in that it offers products that help convert power generated from renewable energy sources into usable energy on today's power grids. The company has yet to make money, but First Call estimates a profit of 10 cents per share in 2011 and close to 40 cents in 2012. The high growth potential makes the low-priced, speculative stock one worth gambling on.

The Bottom Line
The low-risk approach to playing the power grid sector is through an ETF, thanks to the instant diversification it offers. If, on the other hand, you are an investor who does not mind the risk of individual stocks, the four stocks examined here are worth a closer look. (For more, see 5 Ways To Find A Winning ETF

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    The Top 5 Large Cap Core ETFs for 2016 (VUG, SPLV)

    Look out for these five ETFs in 2016, and learn why investors should closely watch how the Federal Reserve moves heading into the new year.
  2. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
  3. Fundamental Analysis

    5 Must-Have Metrics For Value Investors

    Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.
  4. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  5. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  6. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  7. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  8. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  9. Investing

    3 Things About International Investing and Currency

    As world monetary policy continues to diverge rocking bottom on interest rates while the Fed raises them, expect currencies to continue their bumpy ride.
  10. Stock Analysis

    The Top 5 Micro Cap Alternative Energy Stocks for 2016 (AMSC, SLTD)

    Follow a cautious approach when purchasing micro-cap stocks in the alternative energy sector. Learn about five alternative energy micro-caps worth considering.
  1. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  2. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  3. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  4. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
  5. What is the formula for calculating the current ratio?

    The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a company and its ability ... Read Full Answer >>
  6. What is the formula for calculating earnings per share (EPS)?

    Earnings per share (EPS) is the portion of a company’s profit that is allocated to each outstanding share of common stock, ... Read Full Answer >>
Trading Center