Southern Co (NYSE:SO) — It hasn’t been easy for SO stock holders over the course of the past month and a half. Shares peaked at $53.16 on Jan. 28 and proceeded to give up 18% through March 11, hitting a low of $43.55 that day.
Since then, the bulls have been pushing back. And thanks to Wednesday’s market-wide tailwind, they have cleared a significant hurdle and appear poised to continue the rally.
SO stock isn’t going to win any value awards. The trailing P/E of 20.7 and the forward P/E of 15.4 are merely average by broad market standards, and actually expensive by utility standards. But the fact that utility energy stocks outperformed all other sectors during Wednesday’s session speaks volumes about what traders are thinking right now, even if they’re not saying it.
The sharp pullback in SO stock from late January was mostly spurred by whispers that the company wouldn’t be able to sustain its earnings growth trend when it reported Q4 results on Feb. 4.
The concern was merited. The top line of $4.05 billion was better than the year-ago figure of $3.93 billion and topped estimates. But the operating per-share profit of $0.38 only met estimates and was well below the $0.50 the company posted in the fourth quarter of 2013. The market has been punishing SO stock ever since — until this week.
While it’s fair to say traders were expecting too much by running SO stock up to the $53 level, it would also be fair to say the sharp pullback was equally unmerited. This is the crux of the rebound and trade-worthiness of the chart now — the market is correcting its mistake, and it’s doing so in all the right technical ways.
The clues on the daily chart are simple enough. SO stock closed back above its 20-day moving average on Wednesday after making a fairly well organized U-shaped reversal effort over the past couple of weeks. It also logged a bullish MACD cross earlier in the week, and Wednesday’s volume was firm without being climactic.
It’s the weekly chart below, though, that puts the pullback in perspective. Shares are back to where they were in early 2013 and simply don’t deserve to be there. It’s also in this time frame that we can see SO stock is no stranger to big moves — and big reversal moves.
The brush of a minor, long-term support line on the weekly chart appears to have nudged shares beyond the tipping point in a bullish direction.
SO stock is a buy up to $45.70 with a near-term target of $48.80 and a stretch target of $53. Traders should exit if shares slip below the near-term support level, currently at $43.45.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
