Those bemoaning the lackluster performance of integrated gas andutility stocks can blame their woes, at least in part, on theInternet and the technology revolution, according to one analyst.Prudential Securities’ Carol Coale said investors have beenshifting their attention, and their dollars, from the “old economy”to a new one. “Whether it’s Internet or high-tech, we’re seeing amajor sector shift,” she told NGI. Also to blame, Coale said in aPrudential research note, is bearish gas market sentiment.

“Without a cold winter, stock performance may be furtherhampered until a sector rotation into the value stocks occurs.Also, year-end tax-loss selling may be putting additional pressureon the gas stocks, which may indicate a slight recovery in January2000.

Gas stocks in Prudential’s universe have been losing groundsince early September, “and the past few weeks have been ugly,” theMonday report says. “While the deteriorating stock performancemight have been blamed on mild weather in the fourth quarter and onnatural gas prices that have fallen from October highs, many of thestocks have completely given up all of their twelve-monthappreciation. This is in light of strong double-digityear-over-year earnings growth at most of these companies.” Coalenotes absolute price/earnings multiples among gas pipeline stockshave fallen, on average, to the range of 12 to 15 times forwardearnings estimates, compared with multiples in the 15-to-18x rangeone year ago.

Prudential lowered its fourth quarter NYMEX gas price estimateto $2.45 from $2.65/MMBtu. The firm also lowered its 2000expectation to $2.50 from $2.75/MMBtu. “This revision is not meantto send a bearish signal to Wall Street but is more of a reflectionof reality. Our 2000 estimate was contingent on a cold winter.”

Coale said she had been looking for a normal winter, “but on acumulative degree day basis, that’s probably going to be tough toachieve this year.”

The best performing gas utility stocks over the last threemonths are led by Valley Resources Inc., whose price hasappreciated more than 60% over the period. Berkshire EnergyResources has enjoyed a more than 40% appreciation, followed by MCNCorp., Energynorth Inc., Providence Energy Corp., and EasternEnterprises.

Columbia Energy Group’s price has improved more than 9% over theperiod, putting it among the top performers. The company disclosedin a recent filing that it “has received preliminary indications ofinterest from numerous third parties” related to its announcementit would pursue strategic alternatives. In a research notePaineWebber said odds Columbia will sell for more than $74/share”are greatly increasing.”

Market laggards among gas utilities include Southwest Gas Corp.,Questar Corp., Atmos Energy Corp., Semco Energy Inc. and Oneok Inc.

Joe Fisher, Houston

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