Powering the World

	Roger Conrad Utility Forecaster.com
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Selected foreign-based utilities offer high yields and a chance to bet safely on the worlds' most robust economies.

America's electric utilities are surging since their 2001-02 crack-up. But many of the world's most exciting companies are based overseas.

Below, we profile seven of the best electricity companies around the globe, ranging from Asia and South America to Europe. Some are financially powerful, some cheap with big yields. Others have had sizeable runups during the past year and are potentially volatile.

All of these picks, however, should generate solid total returns in coming years, both from expanding businesses and growing dividends. And they'll get another kick in coming months if their home currencies gain strength.

The three that trade on the NYSE are easiest to buy. But any broker worth his or her salt can buy those trading over-the-counter (OTC); and there shouldn't be additional fees or charges. OTCs often present the best values, including Growth Portfolio pick RWE.

A-Rated Asians

Asia is the world's hottest growth story. And despite China's attempts to slow its economy this year that should remain the case for the rest of the decade.

The trouble with many Asian plays is extreme volatility, particularly in developing markets that are prone to inflows and outflows of foreign capital. But volatility is waning as wealth builds in nations like China, India and South Korea. And the surest plays on these countries' growth are their power utilities.

China<'s runaway demand for electricity is a well-known story, as is its nearly insatiable appetite for energy commodities. That's been alternately a curse and blessing for its energy utilities.

The country's largest producer, Huaneng Power, increased its power output by 22 percent in the past year, a figure US utilities haven't matched since the turn of the last century.

The company, however, has been paying escalating prices for coal to feed its plants, which threatens to take a huge bite out of next year's earnings. This year's third quarter profits were flat as fuel costs offset sales growth.

In contrast, Hong Kong-based CLP Holdings' 12 percent sales boost in the first nine months of 2004 financed a dividend increase of nearly 10 percent. One reason the company has taken a "go slow" approach when it comes to expanding in China.

Meanwhile, it's diversified into steady Australia and high-growth India. In addition, at CLP's core is a regulated Hong Kong utility that generates guaranteed, high returns.

Coupled with its use of nuclear power, CLP has been able to thus far avoid most of the cost pressures eating at the bottom line of other Chinese electric utilities. That puts it in prime position to cash in on future opportunities on the Mainland as markets cool. It also helps that Hong Kong is actually growing at a faster rate than China as a whole. CLP is a buy up to 6. All but the most aggressive investors should steer clear of Huaneng.

Hong Kong & China Gas continues to enjoy rapid growth from investing in fledging Mainland natural gas distribution utilities. Like CLP, the company's secure Hong Kong core generates powerful cash flows from guaranteed regulated returns.

The company also owns gas pipelines that serve its facilities and it operates other "green" businesses such as liquefied petroleum gas filling stations and facilities to exploit landfill gas. Uniquely, it manufactures its gas from low-sulfur naphtha, a process that also reduces air emissions of the gasses that cause acid rain and global warming.

Investors have begun to catch on to the company's story, nearly doubling the stock from where we last recommended it nearly two years ago. But with numerous opportunities to expand its China business, it's worth far more than even its seemingly high valuation. Buy Hong Kong & China Gas up to 2.50.

Power demand in India is perhaps even more explosive than in China. The easiest way for foreign investors to take advantage is to snap up a few shares of giant conglomerate Tata.

The company's Tata Power unit has operated for nine decades, recently becoming India's biggest non-government power producer. Current capacity totals 2,278 megawatts, ranging from thermal (gas and coal) to hydro and solar power.

The company's primary territory includes the Mumbai region and the central state of Delhi, both known as power hogs. This year, it gained government sanction to trade surplus power capacity of plants owned by governments as well as other privately-held producers, throughout India. That's an ideal business for taking advantage of the country's uneven development of its power sector.

Of all the stocks on our list, Tata is likely to be the toughest to buy. And, unless you have access to the Internet and can visit their easy-to-use Web site, it's going to be tough to get information. Indian markets also tend to be volatile, including giants like Tata. But those willing to persevere will find a lot of profit in Tata Power up to 9.

Our fourth Asia play is NYSE-listed Korea Electric. Selling for just seven times trailing 2004 earnings, barely six times 2005 estimates and at 40 percent of book value, it's also one of the cheapest electric utilities anywhere.

Korea Electric generates almost all of the power consumed in South Korea. The company faces a challenge in 2005, as its fuel bill surges on high oil prices. Regulators, however, have historically been very accommodative, passing along rising costs.

Further, more than 40 percent of power is generated from nuclear and hydro sources, which aren't affected by fossil fuel costs. It also holds a monopoly on transmission and distribution in the country.

The company is now expanding in North Korea as well. Korea Electric remains a buy up to 15 for patient risk takers.

Old World, New World

The remaining three picks on our list are firmly rooted in the Old World, with secure, cash-generating European utility franchises. But management has also opened up high-potential avenues to growth in the New World.

RWE's massive German asset base has been supplemented in recent years with acquisitions of water utilities in the US and Britain and is now among the globe's largest liquid plays. Energy, however, remains its key business, particularly power generation.

While citing tightening regulation in Germany, management recently forecasted double-digit annual profit growth going forward. We expect them to meet that; RWE is a buy up to55.

Italy's dominant electric utility ENEL is more Euro-centric, focusing strongly on managing its generating business (44 percent national market share) despite investments in the Americas.

The Italian government partially spun off the company to the public in November 1999 and sold another 20 percent earlier this year, a move that required a hefty dividend increase to attract investors. The stock has since surged, but remains cheap due in part to investor fears about the Berlusconi government's plans for the remaining ownership stake.

Fundamentally, Enel is very sound, drawing an A1 stable rating from Moody's and an equivalent one from S&P. And it's destined to keep getting stronger as it sheds non-core assets. Reduced reliance on oil—which generates much of Italy's electricity—gives the company a cost advantage over rivals as well. Buy Enel up to 50.

Latin America's revival from the crash of the late 1990s is starting to kick into gear. The best power play on the region is Endesa, Spain's dominant electric utility that's built an empire during the past decade stretching from Chile to Venezuela. Testifying to the robust health of both its Old and New World businesses, the company enjoyed an 11.8 percent boost in output over last year's levels.

Like its home country, Endesa's current focus is on improving ties with the rest of Europe. The company now controls major franchises in both France and Italy, with a focus on lower-cost fuels. Perhaps in part due to investor trepidation about its presence in countries like Argentina, the stock remains cheap, yielding nearly 5 percent. Endesa is an excellent buy for value hunters up to 24.

Roger Conrad will be available to take your questions until Thursday, December 16. Please use the form below to submit your questions.