Duke Energy Corp (DUK), The Southern Company (SO): This Sector Looks Fully Valued

I’ve written favorably about utilities in the past, but things have changed dramatically since then. For example, Southern Company recently traded for $48 per share, representing a 12% return just since the beginning of the year. Duke Energy Corp (NYSE:DUK), meanwhile, rallied 13% from the beginning of 2013 to over $75 per share before giving back a couple dollars per share.

Both these stocks were yielding 4.5% just a couple months ago, but due to such dramatic gains in such a short period of time, new investors are getting 70 basis points less in yield than they could have gotten so recently.

At this point, it doesn’t seem prudent to pay 20 times earnings for a little-to-no growth stock with a yield below 4%. A few years ago, utilities were trading for much more reasonable valuations and yielded 5% or more. If those conditions existed today, I would view utilities in a much better light. But those days are behind us, and at least for the time being, utilities just don’t offer a nearly compelling enough opportunity.

The article This Sector Looks Fully Valued originally appeared on Fool.com and is written by Robert Ciura.

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