Get better returns with less risk?

Let me give you three electric utility stocks that fit those five rules:

• Edison International. The company owns some of the most efficient coal-fired power plants in the country. It has made a major investment in improving its transmission system and projects it will invest an additional $5 billion in transmission over the next five years. Edison is also investing to extend the life of its San Onofre, Calif., nuclear plant, is implementing one of the country's largest smart-meter installations, has announced plans to add 250 megawatts of solar-generated electricity by installing thin film solar panels on rooftops in its Southern California service area and has work under way on 17 wind farms. All of which are investments that the California Public Utilities Commission has aggressively encouraged -- because California faces severe future shortages of electricity and an inadequate system for getting what electricity there is to the right places -- by adding these projects as completed to the company's rate base. The state Public Utilities Commission has set the company's recent return on equity at 11.5%. The company has roughly $20 billion in spending in its current capital plan. That's enough, Edison calculates, to increase the rate base about 12% a year through 2012. The shares currently yield 2.4%. I'm adding Edison to Jubak's Picks with this column. (As part of my plan to keep cash in the portfolio near 30%, I will look for a sell to balance this buy in the next bear market rally.)

• FPL Group (FPL, news, msgs). I've written about this utility before. The Florida utility is the leading producer of wind power in the United States, with about 30% of the market. At the end of 2007 the company owned 5,100 megawatts of wind-generating capacity. The company plans to add 8,000 to 10,000 megawatts from 2007 through 2012. FPL is also the country's largest generator of electricity from solar thermal power plants. (These plants use sunlight to heat water that then runs turbines that produce electricity rather than generating power from panels of photovoltaic cells.) And it's the fourth-largest producer of electricity from nuclear power in the country. The shares yield 2.6%.

• Exelon. As I wrote when I added this stock to Jubak's Picks on Jan. 15, the company's 17 nuclear units ran at a record 94.5% average capacity in 2007. The company clearly thinks the good times will last for a while: It raised its dividend by 14% at the beginning of 2008. The shares yield 2.2%.

You can earn a higher dividend yield with other utility stocks, but these are the three that best combine current safety and not to be undervalued in a bear market, with the potential for high future earnings growth.

Update to Jubak's Picks

Buy Edison International (EIX, news, msgs): The company has about $20 billion in capital spending scheduled through 2012. That, the company calculates, is enough to keep the rate base growing by about 12% a year during that period. Making new investment in 17 wind farms, extending the life of its San Onofre nuclear power plant, adding 250 megawatts of solar power and upgrading its transmission and distribution networks will further diversify the utility's sources of electricity. Edison already owns some of the most efficient coal-fired power plants in the country.

I'm adding Edison to Jubak's Picks with a December target price of $61 a share. (Full disclosure: I will buy shares of Edison for my personal portfolio three days after this column is posted.)

Developments on a past column

"Inflation from Asia: The next crisis": It's starting to look like China's economy may indeed be slowing. Not to a stall, mind you, but to something less than the red-hot pace that has fueled global commodity and domestic Chinese inflation.

In this year's first half, passenger car sales in China climbed 14% from the same period in 2007. That's great growth by recent U.S. standards but absolutely tepid for China. China's car sales grew 34% in 2006 and 24% in 2007. Most of the decline in growth rates has come in the past three months.

Right now, no one is sure whether that decline marks the beginning of a trend or simply a pause caused by higher gasoline prices and widespread gasoline shortages in China.Editor's note: Jim Jubak, the Web's most-read investing writer, posts a new Jubak's Journal every Tuesday and Friday. Please note that recommendations in Jubak's Picks are for a 12- to 18-month time horizon.

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For suggestions to help navigate the treacherous interest-rate environment, see Jubak's portfolio of Dividend Stocks for Income Investors. For picks with a truly long-term perspective, see Jubak's 50 Best Stocks in the World or Future Fantastic 50 Portfolio. E-mail Jubak at jjmail@microsoft.com.

At the time of publication, Jim Jubak owned or controlled shares of the following company mentioned in this column: FPL Group. He did not own short positions in any company mentioned.

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