A utility stock is a stock for a company found in the utilities sector. This includes water, gas and electric companies, as well as alternative energy producers that utilize wind turbine, solar, ethanol or geothermal energy as sources.
Investors often favor utilities because they provide essential services and therefore are seen as stable and reliable through economic turmoil. Utility companies are also viewed as bellwethers of economic recovery. Although the sector can be sensitive to price fluctuations for commodities such as coal or natural gas, utility companies are typically able to pass those costs along to consumers. The massive amount of infrastructure required poses a significant barrier to entry for new firms. These barriers mean that rarely do new entrants join the utilities sector.
Some utility companies operate as legal monopolies. Utility companies in many parts of the U.S. operate without competition. These monopolies are regulated by state public utility commissions. 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.