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Tuesday, October 17, 2006

Why Warren Buffett Is Buying Utility Stocks

By Yaser Anwar, CSC of Equity Investment Ideas

According to Warren, "that's where the cash is. Utilities have been cash generators for years, but unloved by the market in the wake of the Enron fiasco and industry consolidation," said Wasik, who doesn't pick stocks but can talk about industry history and growth.

In addition, the recent repeal of a little-known Depression-era law - the Public Utility Holding Company Act - made it easier for utility-holding companies to buy other utilities. Buffett said that he would be buying more utilities if the law was repealed and made good on his word."

In March of 06, Berkshire Hathaway, MidAmerican Energy Holdings Company bought Scottish Power Plc for $5.1 billion in cash. He's still shopping around and has told reporters: "My guess is that in the next 10 years we will buy one or two or three good-sized ones."

Bloomberg News columnist John Wasik noted, "The Oracle of Omaha typically buys solid businesses that are good values, generate high cash flow, often pay dividends and feature nearly exclusive franchises. The best-run utilities fit that bill now."

Wasik's insights into the history of the industry have won him praise and an influential following. "One of the most magnetic and powerful con artists of the Great Depression was Sam Insull," said Pulitzer Prize winner Studs Terkel.

"Patron of the arts, philanthropist and Thomas Edison's right hand, he shafted thousands of investors large and small. My mother, one of the latter, lost her bundle during his adventures. I found the work of John Wasik not only personally enthralling but an informal history of that traumatic time."

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