High-Yielder May Be About To Score A Big Rally
With interest rates still in decline, the stodgy, old utilities sector is leading the pack.
Of course, with a more than 20% gain under its belt since early December, it's unlikely the Dow Jones Utility Average can sustain its recent pace. After all, utilities are not likely to explode higher as an Internet or biotech stock could. The industry is too mature for that.
In an age when investors are starved for yield, though, utilities still have appeal, even if only for their dividends. But there are some that offer income and the potential for gains.
We have all heard the investment mantra of buying the strongest stocks in the strongest sectors, which is sound advice. However, my favorite strategy is to buy previously lagging stocks in strong sectors when they are just emerging from technical patterns.
OGE Energy (NYSE: OGE ) is one such stock.
There have been numerous studies that show sector performance to be a large component of individual stock performance.
That makes sense from a fundamental perspective. If there is business for the sector, chances are there is enough business for most member companies. But the word "most" is key, because an out-of-favor company can fall behind its peers.
That is why the technical side is so important here, and from that perspective, OGE looks ready to make a run higher.
The stock bottomed with the market in January, but unlike the broader market, it set a higher low in February, finally moving in lockstep with other utilities.
Even better, the stock moved above both the key 50-day and 200-day moving averages to make it very clear that the stock was back in the hunt.
OGE finally appears ready to catch up to its peers. The now-broken trendline from November 2014 and a parallel line drawn through short-term lows along the way form a clear channel. If we measure the width of the channel and project that up from the breakout, we get a target of about $31.30.
That is also where the 50% retracement of the stock's 2014-2016 bear market resides. And to top it off, it is also near the high made in August when the stock ended a rally attempt with a bearish reversal bar best seen on weekly charts.
In other words, there are several reasons to look for $31.30 to be the first stop in a rally. From current levels, that would result in a 10% gain. Plus, the company pays a quarterly dividend of $0.275 per share for a beefy annual yield of 3.9%. The stock goes ex-dividend on April 6, though, so traders will need to act quickly to collect the payout.
One last thing: As I write this, investors are collecting hundreds and even thousands of dollars in additional income on stocks just like OGE. I'm not talking about special dividends or anything like that. Instead, these investors are skimming the money from Wall Street's biggest firms. It may not sound like it, but it's 100% legal and could allow you to collect an additional $850 a week in income. Click here to find out how.
Recommended Trade Setup:
-- Buy OGE at the market price
-- Set stop-loss at $25.50
-- Set initial price target at $31.30 for a potential 10% gain in five weeks, plus dividends
This article originally appeared on Profitable Trading: High-Yielder May be About to Score a Big Rally
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