STREET SENSE:The fundamentals of stock market investing
Safe Ports in a Stormy Market
Telephone and electricity stocks were once suitable for widows and orphans, but no  more. What's low-risk now?

It wasn't too long ago that certain types of critically needed companies, such as electric utilities and telephone service providers, were granted monopoly status by the government.

Stocks of these companies were so safe they were purchased for widows and orphans. When these industries were monopolies, earnings grew steadily and dividends increased each year.

Other companies, including airlines and banks, weren't exactly monopolies, but for decades they were largely protected from anything that resembled fierce competition.

INDUSTRIES TURNED UPSIDE-DOWN

But the trend toward deregulation changed all that. Today, there's no greater example of cutthroat competition than the ongoing battle among providers of long-distance telephone service. And if you live in a state where electric utilities compete, you know how dog-eat-dog that business has gotten in the past few years.

With the old safe harbors gone, where can an investor look today for earnings stability? In this article, I'll identify several industries that are at least somewhat insulated from the profit-robbing perils of intense competition.

The major energy companies whose operations range from the wellhead to the gas pump -- such as ExxonMobil, Royal Dutch and Chevron -- are structured so that they can deliver a profit in almost any kind of market environment. When the price of oil is high, their exploration and production units are extremely profitable. When oil prices drop, their retail marketing divisions pick up the slack.

In addition, these huge companies have billions of dollars at their disposal to develop the big oil and natural gas fields that will keep profits rolling in for decades to come.

Many investors like the big energy stocks because these companies pay steady dividends, and increase them on a fairly regular basis.

CONTRACTS GO TO BIG PLAYERS

If big is beautiful in energy, it's also an attractive quality in the defense and aviation industries. You can count on the fingers of one hand the defense companies that have the money and experience to develop a new combat fighter or the next generation of missiles. With defense spending scheduled to rise sharply under the Bush administration, you can expect that most of the big contracts will go to huge companies such as General Dynamics, Lockheed Martin and Raytheon.

As for civilian jetliners, there's Boeing and Airbus. These two companies will get all the major jetliner contracts for the foreseeable future.

Also, an interesting near-monopoly situation is shaping up in titanium, a strong, lightweight metal increasingly used in aerospace, medical, energy, consumer product and even construction applications.

Due to industry consolidation, only a few U.S. companies now have a major presence in producing titanium. These companies should be in an excellent position to supply industry's needs at favorable prices.

PATENTS CAN MEAN PROFITS

One other area to research is the drug industry, where patent protection can enable a company to record huge profits for years as a result of a market-leading drug. Most of us know what Tagamet did for SmithKline and how Viagra helped Pfizer skyrocket. Investors should remember that the ability to dominate a market spells opportunity for the companies that enjoy that edge. 

Ophthalmology Management Associate Editor Jerry Helzner has written more than 50 articles on stock investing for Barron's. He has been a regular stock market columnist for other business publications and was a member of the equity research department of a major regional brokerage firm.