Utilities : buy now?

At nearly 10% of the MSCI Europe and S&P 500 indices, utilities play an important role in investors' portfolios.

After being a star performer since 2003, utilities have been disappointing since their relative peak in early 2009.

Is there any light at the end of the tunnel?

Current electricity prices are back to the 2005 levels while usage is probably not far from those levels.
So it looks consistent to expect to go back to the level of earnings seen in 2005. On that basis, utilities are still 15% too expensive.

The interesting point though is the composition of the sector: major integrated utilities have been very poor while grid and special situations have outperformed.

The sector will only rerate when the downward revisions stop at the majors. The latter have taken on a lot of debt to expand capacity at the peak of the market. They will need another year to digest those  capex.

Keep selling.