Markets

Can Utility Stocks Pull A Surprise Despite Fed?

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C ould utilities surprise the bears in 2016? Many on the Street would say no, and they might be right. As Brad Sorensen, managing director of market and sector analysis at Charles Schwab , wrote in a Dec. 10 note, "the shifting Fed paradigm will have a negative impact on the utilities."

Ned Davis Research looked at some rate cycles and found that utilities lagged in price performance in the three- and six-month periods after the Federal Reserve's first hike.

Overall, the research was divided into two segments: a period when the Fed raised rates at nearly every meeting and a period when hikes came slowly.

The S&P 500 fell 2.7% in the 12 months after a fast rate-hiking cycle. Yet, the S&P 500 rose an average 10.8% in the slow cycle.

Some might question how relevant the research is to the current stock market . Near-zero rates have few precedents beyond Japan's repeated failures since the 1990s.

Investors don't have to delve into the rate-hike argument. It's enough to know that the slow cycle suggests good things can happen.

Price and volume should be the focus.

Among the 29 stocks in IBD's Utility Leaders screen, 14 have a Relative Strength rating of 80 or better. Three are above 90.

The proprietary RS rating measures a stock's price performance over a 12-month period, with extra weight assigned to more recent months. A rating of 90 means the stock is in the top 10% in price performance.

The stocks and RS ratings arePiedmont Natural Gas ( PNY ), 98;Teco Energy ( TE ), 95;AGL Resources ( GAS ), 92;Atmos Energy ( ATO ), 89;Aqua America ( WTR ), 89;American Water Works (AWK), 88;Westar Energy (WR), 88;Scana (SCG), 88;PNM Resources (PNM), 87;NiSource (NI), 86;CMS Energy (CMS), 82;Southern Company (SO), 80;PPL Corp. (PPL), 80;Ameren (AEE), 80.

Some of these stocks are involved in mergers or takeovers. It's reasonable to assume the acquisitions are already priced in.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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