U.S. equities have gone back into stasis as October kicks off — a historically harrowing month of the year made even more so by the upcoming presidential election, doubts about Deutsche Bank AG (USA) (NYSE:DB), weak corporate earnings and uneven economic growth.In this environment, one would expect interest in dividend-focused safe havens like utility stocks. But you’d be wrong.
The Utilities Select SPDR (NYSEARCA:XLU) is suffering its seventh consecutive loss today, as it revisits its lows from early September. The XLU was down nearly 9% from its July high at its low of the day, a hard knock for an exchange-traded fund that carries a 3.5% dividend yield.
The problem is a recent upward tick in long-term government bond yields, with the U.S. 10-year yield up to 1.62% from a low of 1.37% during the summer. Because of the concept of duration, with interest rates so low, any small increase in rates has an outsized effect on the prices of yield-sensitive assets like utility stocks.
The move higher in yields, it seems, is being driven by a combination of persistent expectations of higher economic growth into 2017, a recent uptick in crude oil driving inflation expectations higher and expectations that the Federal Reserve will raise interest rates again in December.
As a result, here are five big utility stocks to avoid.
Big Utility Stocks to Sell: Duke Energy Corp (DUK)
Duke Energy Corp (NYSE:DUK) shares are falling to retest their September low as well as support from their 200-day moving average near $78-a-share.
A breakdown here would set up a test of the April-May lows near $75. DUK shares didn’t get much of a lift back in early August despite reporting an earnings beat of $1.07 per share — 6 cents ahead of estimates — and reaffirming its fiscal year guidance.
The company will next report results on Nov. 3 before the bell. Analysts are looking for earnings of $1.54 per share on revenues of $6.96 billion. Duke Energy stock is carrying a 4.3% dividend yield.
Big Utility Stocks to Sell: Exelon Corporation (EXC)
Exelon Corporation (NYSE:EXC) shares have dropped below their 200-day moving average for the first time since last August, as EXC falls out of a sideways trading range going back to March.
There was some excitement back in July following an analyst upgrade on Exelon stock from Deutsche Bank, on a $39 price target, but the bounce quickly faded.
EXC will next report results on Nov. 2 before the bell. Analysts are looking for earnings of 73 cents per share on revenues of $7.7 billion. The company is carrying a 3.9% dividend yield.
Big Utility Stocks to Sell: Public Service Enterprise Group Inc. (PEG)
Public Service Enterprise Group Inc. (NYSE:PEG) shares ended their eight-month excursion above its 200-day moving average in August and they have been flailing around since.
A challenge to $44 was quickly reversed. PEG shares are now testing critical support near their early September lows — risking a drop back to levels not seen since February.
The company will next report results on Oct. 31 before the bell. Analysts are looking for earnings of 88 cents on revenues of $2.8 billion. The company is carrying a 3.97% dividend yield.
Big Utility Stocks to Sell: Dominion Resources, Inc. (D)
Dominion Resources, Inc. (NYSE:D) shares have fallen, testing its early September lows and setting up another move to its 200-day moving average, which has supported D shares all year.
Investors have had to be patient, with prices hovering near levels first reached in late 2014. Dominion Resources stock was downgraded by Morgan Stanley in early August following a Q2 earnings and revenue miss.
The company will report results on Nov. 2 before the bell. Analysts are looking for earnings of $1.12 per share on revenues of $3.3 billion. The company is carrying a 3.8% dividend yield.
Big Utility Stocks to Sell: American Electric Power Company Inc (AEP)
American Electric Power Company Inc (NYSE:AEP) shares have fallen below their 200-day moving average for the first time since December as the medium-term downtrend that started in July continues.
A little flurry of buying activity last month was abruptly stopped after analysts at Jefferies downgraded AEP stock.
The company will next report results on Nov. 1 before the bell. Analysts are looking for earnings of $1.11 per share on revenues of $4.5 billion. The company is carrying a 3.5% dividend yield.