Utility Stocks Look Like a Great Bargain

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Stocks generally closed higher Tuesday, but the last hour of trading was disorderly due to the leak of Twitter Inc’s (NYSE:TWTR) earnings at 3:07 p.m. EST. The leak showed a shortfall in revenue and disappointing guidance, despite the company beating bottom-line estimates. Trading in the stock was halted by exchange officials as they attempted to sort out the impact of the announcement and reopen the stock before the official close. Shares finally opened lower, closing down 18.2% on the day.

More than 40 companies reported quarterly earnings Tuesday. Merck & Co., Inc. (NYSE:MRK) beat estimates and raised earnings guidance for the year, and the stock rose 5%. Aetna Inc (NYSE:AET) gained 3.2% after it reported better-than-expected earnings. And Apple Inc. (NASDAQ:AAPL) said it sold 61.2 iPhones in Q1, up 40% from a year ago. Its quarterly profits rose 33%, but shares fell 1.6%.

Biotechnology stocks were hard hit again for their third consecutive day of losses. The iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) fell 1.2%. Traders said the group had “ran too far, too fast” and was due for a round of profit-taking.

Gold futures rose 0.9%, closing at $1,214 an ounce. Crude oil was up 0.1% to $57.06 a barrel. And the U.S. dollar fell 0.7% against a basket of 16 currencies. It was the fifth straight day that the dollar closed lower.

At Tuesday’s close, the Dow Jones Industrial Average gained 72 points at 18,110, the S&P 500 rose 6 points to 2,115, the Nasdaq fell 5 points to 5,055, and the Russell 2000 was up 7 points at 1,259.

The NYSE traded a total of 3.6 billion shares, and the Nasdaq crossed 2 billion shares. On both major exchanges, advancers outpaced decliners by 1.7-to-1.

Dow Jones Utility Average Chart
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Chart Key

Hardly anyone talked about the Dow Jones Utility Average despite its outstanding performance in the second half of last year. From June 2013 to the high in late January 2015, the usually staid group of stocks, which are favorites among retirees, rose an astounding 36%. Now, after a decline of nearly 11%, utility stocks are being ignored.

Technically, as long as the Dow Jones Utility Average holds above its current channel of 580 to just above 600, it looks like a bargain. And P/E-wise it is a bargain, trading at 17.07 times this year’s forecasted earnings versus a P/E of 19.53 based on last year’s earnings. It is also sporting a dividend yield of 3.37% versus 2.72% last year, which is further evidence the index is undervalued.

Conclusion

For those who know that successful returns in stocks are not achieved by short-term gains, the utility group is an attractive alternative to higher-risk sectors. This week, I’ll highlight utility stocks with solid dividends that are in a buying range.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.


Article printed from InvestorPlace Media, https://investorplace.com/2015/04/daily-market-outlook-utility-stocks-look-like-a-bargain/.

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