Utility Stocks Look Like a Great Bargain
Sam Collins<p><p>Sam Collins is InvestorPlace.com's Chief Technical Analyst. He has more than four decades of experience in Wall Street firms.</p></p><p><p>In addition to providing fundamental and technical analysis for InvestorPlace.com, he provides FREE daily market commentary each trading day via the <em>Daily Trader's Alert</em>. The <em>Daily Trader's Alert</em> contains his Daily Market Outlook PLUS a Trade of the Day.</p></p><p><p>Sam served as a regular army captain serving in West Germany during the Berlin Wall Crisis before joining Merrill Lynch as a futures broker. Since then, he has been a financial adviser, branch manager, regional manager and certified portfolio manager with national and regional securities firms. While he retired in October 2009, during his career, he received recognition and numerous awards.</p></p><p><p>Sam used technical analysis as a timing and selection technique with portfolios that he managed. He developed a specific technical analysis technique and timing system called the Collins Bollinger Reversal (CBR) that has received national recognition, and he has appeared on local and national TV as a financial commentator.</p></p><p><p>As an equity specialist and technician, he uses technical analysis as a selection technique along with fundamental analysis. As a value buyer, his goal is to find companies with outstanding management, unique products and strong financials that have not yet been driven to unreasonable prices. His CBR system helps him to screen vast amounts of data for stocks that meet those standards.</p></p>Sam is also a member of the NASD Board of Arbitrators.Stock Market Today
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.
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.