5 Reasons to Buy Utility Stocks: CenterPoint Energy, Inc. (CNP), Duke Energy Corp (DUK)

Page 1 of 2

Utility stocks have received very little interest, despite a favorable environment.  Here are five reasons why you should consider utility stocks now.

1. Low interest rates

The utility sector  enjoys its best performance during  periods of low interest. Utility stocks are traditionally highly leveraged, requiring large amounts of capital.  High interest rates eat into utilities’ profits, and offer little wiggle room when it comes to retiring or refinancing existing debt.

However, the Fed plans to keep interest rates low until unemployment drops below 6.5% (and inflation remains checked under 2.5%), which means the outlook for borrowings remains favorable.  The current employment growth rate suggests it will take another two years before the Fed considers a rate raise.

CenterPoint Energy, Inc. (NYSE:CNP)2. Rich yields

The Utilities SPDR (ETF) (NYSEARCA: XLU) currently yields 4.0%, which is attractive when compared to the bond yields.  The 10-year treasury offers a paltry 1.9% and the 30-year only offers 3.1%. Utility stocks have the added attraction of offering capital growth. This makes them attractive to income investors, and provides a safe haven from more speculative issues.

3. They’re currently out of favor

For the past six months, markets have enjoyed significant gains.  However, utility stocks have underperformed since the November bottom.  The Utilities Select Sector SPDR is down 1.3% from the November low, compared to a corresponding 4.6% and 4.8% gain for Industrials and Financials, respectively.  The only other sector to underperform utilities was the Technology sector, and that was all thanks to Apple.  However, as traders look to take profits in outperforming sectors, money will begin to flow into “safe haven” sectors such as Utilities.

4. March is the cruelest month

We are entering a month which traditionally hasn’t been strong for utilities. This means utility stocks will continue to offer value, likely remaining outside the limelight of other sectors.  For investors looking to build a position over time, it’s best done during periods when both selling and buying interest is low.

5. They look like a safer bet

The current bull market which is almost three years old.  For many stocks, the best of the gains are long past. This will make it tougher to find the next big winner  The conservatism typical of utility stocks could make them attractive to investors burned chasing alpha.

With these five factors in mind, the following utility stocks might be worth watching:

Equitable Resources

This utility’s knocking on the door of a move to new multiyear highs.  The bar was originally set at $70.42, before a brief pop above $70 raised this to $71.62 in 2011.  The stock is edging a break of $63 in low key action.  Unlike many of its peers, it trades a ‘high’ P/E, but having reported earnings which beat analyst expectations on EPS.

Equitable Resources is impacted by lower commodity prices, particularly in natural gas.  Gas-liquid volumes were up 13%, and transmission capacity reservation revenues grew 27%, but commodity prices were 21% lower than last year.  This brought a drop in year-on-year EPS.  Weak commodity prices are hiding good performance in its underlying business.  Natural gas prices, while weak, have stabilised in recent years, and this will provide the foundation for the next move higher and offer the ground work for Equitable Resources to benefit.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!