Three High Yield Utilities You Might Want to Exit Now (But Buy Later)

By ChartLabPro.com  AUG 06, 2012 2:25 PM

S&P Utilities will not likely breach 1420. Duke, Southern, and Exelon can probably be bought cheaper later.

 


MINYANVILLE ORIGINAL With the 10-year bond trading around 1.56%, investors are searching for yield.  Additionally, the volatility of the last several months had many investors running to low beta names. Based on Chartlabpro.com’s proprietary buy/sell rating, utilities is the only sector rating a Strong Buy, all other sectors are rated a Hold.

That said, at this juncture we see the forward curve for the sector backwardated, and believe some of these can be bought back cheaper at a later date. Specifically, we don't see the S&P utility sector going over 1420, which would be a good point to reduce long exposure. Our analysis is based on the current uptrend from the start of June through this past week. 

Below are 31 utility names that make up the S&P 500 utility sector.  We illustrate the top three by percent weighting in the sector which together make up 25.38%: Duke Energy (DUK), Southern Company (SO), and Exelon Corporation (EXC).  Duke Energy is currently yielding 4.50% on a forward annualized basis, while Southern Company is yielding 4.10% and Exelon 5.50%.



Even though the top three names are not overbought, nor is the sector as a whole, it would be prudent to reduce long exposure if you happened to have been long for the last several months.  For those of you not long the sector, watch for a broad market pullback to get in.

Money has been moving to more aggressive sectors (versus defensive ones). Below is a chart of how aggressive sectors performed compared to defensive sectors.  Interesting, note that defensive names during the last 70-point run in the S&P 500 have not deviated with aggressive sectors like we saw in January.

aggressive-vs-defensive-sectors-chart
Click to enlarge
 
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No positions in stocks mentioned.

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