Exelon (EXC) is one of the largest utility stocks out there, with a $24.4 billion market cap and a dividend of 4.3%. However, like most utility stocks EXC has grossly underperformed in 2013 with a 4% decline vs. a raging bull market that has lifted most other stocks by over double digits.
Exelon is partially a victim of sentiment as investors have gone “risk on” in favor of more growthy investments this year, but it’s also a victim of a too-high valuation. Even now it trades for a forward P/E of almost 13 after missing out on the rally as earnings have edged higher. That’s at best fairly valued, so don’t expect EXC stock to snap back anytime soon.
Thanks to these valuation and sentiment issues, EXC stock was recently downgraded to “underweight” from “overweight” at Morgan Keegan, with a $21 price target — down 26% from here — so if you think that nice dividend is reason alone to hold this stock, consider you could be sitting on a loss even after baking in your monthly distributions over the next year or so.
Utility stocks play a role in low-risk portfolios, yes, but this one doesn’t. Trade out of Exelon because there are a host of other income investments out there that will be a better place to park your cash.