Dominion Resources' stock has been in a mild uptrend since first recommend in May, but it's still undervalued, for those investors who missed the May call.

Hence, it goes without saying that I'm reiterating my Buy rating for Dominion Resources (NYSE: D), first recommended on May 8, 2009 at a price of $31.87.

Readers of this space know that one of the preferred sectors is the electric power generation sector.

And the sector is favored for a reason that may not be obvious to all. Electricity via wind, solar, and nuclear generation is likely to play a larger role in energy as climate change reduction, then elimination, becomes a societal goal. Electricity also remains a potential propulsion source for cars, particularly once oil resumes its inevitable climb. And with the above in mind, electric power generator Dominion Resources (NYSE: D) is worth a review.

This post is part of a series featuring bargain stocks that are worth a look now. See more Cheap Stocks.

In addition to old standbys like consumer staples, utility stocks are a proven favorite during times when your portfolio needs a defensive touch. Among utilities, Virginia-based Dominion Resources (NYSE: D) stands out for its solid price action, its exposure to natural gas, and its heavy potential for future upgrades.

While natural gas might not seem terribly thrilling, many analysts expect it to be a hot commodity in the coming years. It's a plentiful resource in North America, and no less an energy tycoon than T. Boone Pickens is banking on a natural-gas boom. With 1.1 trillion cubic feet of oil and natural gas reserves, Dominion looks poised to capitalize on a shift toward this source of energy.

The utility firm already seems to be thriving, in fact. In its October 30 earnings report, the company exceeded analysts' profit expectations by 4 cents per share, and offered upbeat guidance for fiscal 2008 and 2009.

For value investors, though, the third-quarter report contained even more good news. Thomas Farrell II, Dominion's president, chairman, and CEO, stated, "Given its confidence in the strength of our company's earnings and business model, the board of directors recently declared our fourth-quarter dividend and reconfirmed our dividend policy to sustain increases in 2009 and 2010 that will allow us to reach our targeted 2010 payout ratio of 55%."

While other earnings may have disappointed last week, the news was good for oil giant ConocoPhilips (NYSE: COP). In what some took as a good sign for big oil, the Houston-based company reported that third quarter net income surged 41% year over year to $3.39 per share, and that revenue also surged 52% to $70 billion. We'll see whether the good news extends to other petroleum giants scheduled to report quarterly results this week.

Analysts surveyed by Thomson Financial are looking for BP (NYSE: BP) profits to have grown 43.2% in the most recent quarter to $2.34 per share on revenue of $109.7 billion, and Chevron Corp. (NYSE: CVX) to post earnings up 39.4% to $3.25 per share on revenue of $86.8 billion. Marathon Oil Corp. (NYSE: MRO), ExxonMobil Corp. (NYSE: XOM), and Royal Dutch Shell (NYSE: RDS.A) likewise are expected to report higher net income of $2.33 per share (sales of $23.4 billion), $2.40 per share (sales of $131.4 billion), and $2.65 per share, respectively. Even Valero Energy Corp. (NYSE: VLO) is expected to post earnings slightly higher to $1.46 per share (sales of $36.4 billion), despite the effects of Hurricane Ike. Among these companies, only BP and Valero beat earnings expectations in the previous quarter. Not surprisingly, analysts on average recommend buying all except Valero, and shares of all of these companies have recently hit 52-week lows.

The Washington Post reports that pension fund managers representing $1 trillion have petitioned the Securities and Exchange Commission (SEC) to required public companies to disclose the impact of global warming on their business prospects. If the SEC agrees, the change could threaten investors in utility stocks -- which are among the biggest private sources of carbon dioxide emissions that cause global warming.

Here's a list of utility stocks which could be most affected:

• American Electric Power (NYSE: AEP). AEP produced 145.4 million tons of carbon dioxide in 2006. In Europe, where legislation already limits carbon dioxide emissions, allowances for a ton of carbon dioxide sell or 20.5 euros, or about $28.50. So if its 2006 carbon dioxide had been emitted in Europe, AEP would have had to pay over $4 billion.
• Dominion Resources (NYSE: D)
• Dynegy (NYSE: DYN)
• Xcel Energy (NYSE: XEL)

Coal producer, Peabody Energy Corp. (NYSE: BTU) could also be among those companies affected.

MOST NOTEWORTHY: Dell Inc (DELL) and Taiwan Semiconductor (TSM) were today's most notable upgrades:

• Dell Inc (NASDAQ: DELL) was upgraded to Outperform from Neutral at Credit Suisse, with a $28 target. The firm expects Dell to augment its existing technology with targeted acquisitions, reduce its cost structure and tweak its distribution philosophy.

• American Technology upgraded Taiwan Semiconductor Manufacturing Co ADS (NYSE: TSM) to Neutral From Sell.

OTHER UPGRADES:

• Level 3 Communications Inc (NASDAQ: LVLT) was upgraded to Market Perform from Sell at Janco; the firm doesn't recommend being short on the stock which is going into earnings on February 9th.

• Dominion Resources Inc (NYSE: D) was upgraded to Hold from Sell, with an $81 target, at Deutsche Bank.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Amazon.com Inc (AMZN) and Microsoft Corp (MSFT) were today's most notable upgrades:

• Piper Jaffray upgraded Amazon.com Inc (NASDAQ: AMZN) to Market Perform from Underperform, with a $36 target, to reflect the company's strong revenue growth; however, they still consider up-side limited from here.

• Bank of America upgraded Microsoft Corp (NASDAQ: MSFT) to Buy from Neutral, with a $35 target, as they believe the company's growth outlook is solid and that 2008 consensus could be conservative.

OTHER UPGRADES:

• Following the company's solid Q3 report, Electronic Arts Inc (NASDAQ: ERTS) was upgraded by Deutsche Bank to Hold from Sell, with a $50 target, and to Buy from Hold at Needham, with a $60 target.

• Citigroup upgraded Raytheon Co (NYSE: RTN) to Buy from Neutral, with a $60 target, to reflect the company's above-industry growth and low valuation.

• Wachovia upgraded Dominion Resources Inc (NYSE: D) from Market Perform to Outperform. The firm said their estimates have been too conservative.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Dominion Resources Inc. (NYSE: D) is making some big changes. The company wants to unload about 83% of its oil and gas production business. The reserves are in areas such as New Mexico, the Permian Basin in Texas, the Gulf of Mexico and Canada.

Such a deal will carry a heavy price -- the estimate is $15 billion or so. But of course there is a ton of cash in the private equity sector and it looks like Dominion will have no trouble finding buyers.

According to the Wall Street Journal, one group includes firms like Madison Dearborn Partners, Warburg Pincus, First Reserve and Carlyle Group. And it looks like Goldman Sachs (NYSE: GS0) and Morgan Stanley (NYSE: MS) will also join the party.

Aren't these companies arch enemies?

Yes they are. But big-time deals require teamwork. Besides, Dominion's assets are top-notch and should be a strong source of ongoing cash flow generation as well as tax benefits.

And the interest in Dominion is another sign that private equity thinks that over the new few years energy prices should increase.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.