Blackout Reveals a US Market in Control

Physician's Money Digest, September15 2003, Volume 10, Issue 17

Just when things on Wall Streetcouldn't get any more boring,along comes a blackout thatrocks the East Coast—the largestpower blackout in US history.

As consumers and businesses alikewaited for cool air to go back on, the heatwas building and fingers started to layblame. US and Canadian provinces pointedthe blame away from themselves, denyinginitial reports flying around. Fridaymorning, we heard from governors andpoliticians who demanded answers.

Never mind that the electric powergeneration and transmission industryhasn't made any capital improvementsand investments in decades, politiciansstill need an opponent to blame, if onlyto help them look better.

Effect on Markets

On Friday, August 15, after the blackout,investors looked for a way to make abuck off it. This brought speculation inseveral energy-related stocks that mightbenefit from the attention that will surelyturn to our electric utility industry.

Politicians and analysts all called fornew laws and new commitments to theindustry and an updating of the electricalgrid. American energy grids are still operatingunder systems set up in the 1950s.President Bush said this was a wakeup calland that we must push aside politics andsolve the problem. Energy-related companiesare enjoying some time in the limelight;many of their stocks took a positiveleap in the aftermath of the blackout.

General Electric (GE) popped upabout 75 cents as talk surfaced aboutthem getting new contracts. United Technologies(UTX), another company inpower supply equipment, went up. Otherinteresting companies in fuel cell technologyshot up as investors took a new lookat them. Several analysts on CNBCreported they liked Fuel Cell Technologies(FCEL), which was up over $1 as speculationheated up on how it would fare inany new power focus. Ballard Power(BLDP), up over 75 cents, was anotherbeneficiary of the new focus on fuel cells.

Intermagnetics General Corp (IMGC)exploded over $5 as the company's CEOspoke on CNBC about his company'stechnology. IMGC is a global developerand manufacturer of superconductingmaterials, radio frequency coils, magnets,and devices utilizing low- and high-temperaturesuperconductors.

Fluor (FLR) was up over a buck. FluorCorp is a professional services companyaligned into 5 segments. The energy andchemicals segment provides design, engineering,procurement, and constructionservices on a worldwide basis to an extensiverange of oil, gas, refining, chemical,polymer, and petrochemical clients. Theindustrial and infrastructure segment providesdesign, engineering, procurement,and construction services. The power segmentdesigns, engineers, and constructspower facilities globally.

The Shaw Group Inc (SGR) was upover $1. SGR is a global provider of comprehensiveservices to the power, process,environmental, and infrastructure industries.Quantas Services Inc (PWR) went upover $1.50. PWR is a provider of specializedcontracting services, offering end-toendnetwork solutions to the electricpower, gas, telecommunications, andcable industries. The company's servicesinclude designing, installing, repairing,and maintaining network infrastructure.

American Superconductor Corp(AMSC) shot up over $3 after the blackout.American Superconductor developsproducts using superconductor materialsand power electronic converters. Thecompany designs, develops, manufactures,and markets 2 core-enabling products:high-temperature superconductorwires and power electronic converters.

Market on the Move

Other stories over the past few weeksinclude McDonald's (MCD). MCDreported better earnings as the companyfocused on its operations and introducednew products that got older consumers tostop in for a salad. MCD has been in thedoghouse for a few years as its stock haslanguished and sales slowed.

Elsewhere, mortgage rates nationwidespiked up from a national average back inJune of around 5.25% to over 6.375%.The rise in rates occurred as perceptionschanged from a slumping economy to agrowing one. Overall bond prices fell andinterest rates rose. This hurt the bondmarket and caused several housing stocksto come down from their lofty levels.

Toll Brothers Inc (TOL) experienceda shift downward. TOL designs, builds,markets, and arranges financing for single-family detached and attached homesin middle- and high-income residentialcommunities. It caters to move-up,empty-nester, and active-adult, age-qualifiedhomebuyers in 22 states in 6regions around the United States.

Hovnanian Enterprises Inc (HOV)also took a significant dive from a high ofover $72. HOV constructs and marketssingle-family detached homes and attachedcondominium apartments andtownhouses in more than 196 new homecommunities in New Jersey, Pennsylvania,New York, Virginia, Maryland,North Carolina, Texas, and California.The company offers a wide variety ofhomes that are designed to appeal tofirst- and second-time and move-up buyers.It also caters to luxury buyers, active-adultbuyers, and empty-nesters.

Looking forward, the markets willcontinue to focus on energy-related,international peacekeeping, and homelandsecurity events. However, as numbershave shown recently, the economyseems to be coming back.

Ernest Caponegro is a New Jersey–based registered representativeaffiliated with First Montauk Securities,member NASD/SIPC. Hewelcomes questions or commentsat 888-786-9507. Any opinionsexpressed are the author's and do not necessarilyreflect the opinions of First Montauk Securities orthose of its officers, directors, or affiliated registeredrepresentatives.