Talk about a power outage. Utility stocks short-circuited in 2009, trailing the market by more than 10 percentage points one of the worst showings of any industry. But some strategists argue that this beaten-down sector could regain some of its spark.

Utility companies usually lag behind the market in the early stages of a recovery, as investors shift into faster-growing stocks. But the sector tends to rally after the economy starts humming, and that s what some analysts are expecting. Some argue that electricity demand should pick up with a rebound in home sales and industrial activity. In the long term, assuming the economy doesn t stall again soon, earnings could grow 5 to 6 percent annually, says analyst Michael Worms of BMO Capital Markets. For electric companies, he says, that isn t too shabby.

Since many utilities rely heavily on coal, some investors have worried that regulation aimed at curbing carbon emissions could hurt the sector. But companies are already getting a boost from the green-energy movement, especially from projects to build new transmission lines and transport wind power from desolate parts of the country (think the Texas Panhandle) to high-population areas. The federal government offers certain utilities a guaranteed rate of return on such investments around 11 percent and the industry plans to spend upwards of $10 billion a year on transmission projects, three times the pace of spending in the 1990s, according to industry consulting firm Brattle Group. Worms recommends FPL Group as a company that should profit from the wind build-out.

Some pros say utilities can be a good bet for those who think the overall market is overheating. The sector is one of the least correlated to the S&P 500, and since the markets peaked in October 2007, utilities have held up better than most sectors (albeit with a 23 percent loss). Trading at a steep percent discount to the market, the sector is cheap with a capital C, says David Rosenberg, chief economist for the investment firm Gluskin Sheff.

And of course, utilities always have at least one thing going for them: dividends. Although yields have come down recently, they still average more than 4%. Bill Gross, Pimco s co-chief investment officer, recently pointed out that the yields on utility stocks are more attractive than the companies debt. And bonds lose value when interest rates rise, while utility stocks are more likely to hold up. Says Rosenberg, They re bonds in drag.

Utility Players

One of the largest producers of wind and solar energy, this Florida utility is benefiting from efforts to control carbon emissions.

A California utility, it s expanding into liquefied natural gas terminals and pipelines and owns part of a fast-growing commodities-trading business.

Based in New Orleans, the firm is a large nuclear-power generator; it plans to buy back up to $750 million in stock and spin off its unregulated nuclear plants, potentially lifting earnings.