A utility stock is a stock for a company that is found in the Utilities Sector. These companies include water, gas, electric, and other infrastructure firms. In recent years alternative energy production has been added as a subset of the traditional utility companies. These alternative energy companies include wind turbine companies and solar electric firms. Some other types of firms included under the alternative energy heading are ethanol producers and geothermal energy production companies.
Investors often favor utilities stocks because of their relative stability. Utilities are seen as stable and reliable throughout economic turmoil because of the necessity of the products they provide. These companies are also viewed as leading indicators of economic recovery. Although the utilities sector can be sensitive to changes in commodities prices, such as coal or natural gas, utility companies can typically pass those costs along to consumers. The amount of infrastructure required presents a significant barrier to entry for new firms. Utility firms require massive amounts of infrastructure. The barriers to entry mean that there are not often new entrants into the utilities sector.
Some utility companies operate as legal monopolies. Utility companies in many parts of the United States operate without competition. The government determines that it is in the best interest of the public that the utility company be allowed to operate free from competition. In most cases, the legal monopoly is allowed to exist until some other company finds a way to present a competitive offering in the market in question.