5 Utility and Telecom Stocks That Yellen Just Clipped

The specter of rising interest rates has made these already wavering stocks look worse

Source: Day Donaldson Via Flickr

U.S. equities overall are melting higher again on Tuesday, but not all stocks in the market are participating. In fact, net advancing issues have declined for the last two days on the New York Stock Exchange. Buyers instead are focusing on a narrowing group of rising stocks.

The catalyst for the broad market rise today was relatively hawkish comments from Federal Reserve chairwoman Janet Yellen. This, in turn, raised the odds of a rate hike at the next Fed policy meeting in March.

Adding to the upward pressure on interest rates was data showing producer price inflation is heating up.

Treasury bonds weakened (and yields rose) as a result, pulling down yield-sensitive stocks like utilities, telecoms and REITs in sympathy. This goes to show you that while higher rates are for now considered a positive for the stock market because of the profit positive impact on net interest margins for banks, it’s not a positive for many other areas of the economy.

Here are five utility and telecom stocks that you might be better off avoiding right now.

Utes and Telecoms That Got Clipped: CenturyLink (CTL)

Utes and Telecoms That Got Clipped: CenturyLink (CTL)

CenturyLink Inc (NYSE:CTL) shares are languishing below their 50-day and 200-day moving averages and remain well off of the highs set in 2016 (near $30) and in 2014/2015 (near $36). CTL is partially being weighed down by mixed results reported Feb. 8.

However, the $34 billion acquisition of Level 3 Communications, Inc. (NASDAQ:LVLT), which is expected to close by the end of the third quarter of this year, also has failed to generate much investor excitement despite geographic and fiber-network synergies.

CTL’s next earnings report won’t come until May 3 after the close. Analysts expect earnings of 59 cents per share on revenues of $4.3 billion.

Utes and Telecoms That Got Clipped: Dominion Resources (D)

Utes and Telecoms That Got Clipped: Dominion Resources (D)

Energy utility Dominion Resources, Inc. (NYSE:D) looks ready to reverse lower after testing its 200-day moving average and continuing a long sideways consolidation going back to June. A break below the November lows near $70 would violate the three-year-long uptrend going back to December 2015.

Dominion reported weaker-than-expected results on Feb. 1, with both revenues and earnings missing estimates, so there’s not much in the way of positive fundamental catalysts to help out D shares.

Dominion’s next earnings report isn’t until the morning of May 4. Analysts currently expect profits of $1.07 per share on revenues of $3.8 billion.

Utes and Telecoms That Got Clipped: Dynegy (DYN)

Utes and Telecoms That Got Clipped: Dynegy (DYN)

Shares of Houston-based Dynegy Inc. (NYSE:DYN) continue to languish below the $10-a-share level amid a four-month sideways crawl.

The company has been hit with a number of analyst downgrades in recent months as Wall Street has turned away from the industry given expectations for a rising rate environment. Deutsche Bank called out poor valuations, rising inflation, and tax reform uncertainty as risks back in December, when it downgraded DYN to “Hold.”

DB doubled up on its bearish thoughts about a week ago, downgrading it again to “Sell.”

And last month, UBS downgraded DYN on specific concerns including high leverage and dimming hopes of a potential buyout offer.

Utes and Telecoms That Got Clipped: AT&T (T)

Utes and Telecoms That Got Clipped: AT&T (T)

AT&T Inc. (NYSE:T) shares are moving lower on Tuesday to test the bottom of a three-month consolidation range with critical support at $40.50. This after bonking on overhead resistance from the August high near $42.50.

The stock is under pressure after archrival Verizon Communications Inc. (NYSE:VZ) announced it was bringing back unlimited smartphone data plans for the first time in years, when combined with a “free phone to switch offer” is raising the specter of a price war in the industry.

AT&T will next report results on April 25 after the bell. Analysts are looking for earnings of 74 cents per share on revenues of $41.1 billion.

Utes and Telecoms That Got Clipped: Level 3 Communications (LVLT)

Utes and Telecoms That Got Clipped: Level 3 Communications (LVLT)

Level 3 Communications, Inc. (NASDAQ:LVLT) is an outlier here in that it’s not a yield play like the rest of these telecoms and utilities. However, I’m including it because of its connection to CenturyLink and its weakening technicals.

Analyst downgrades have followed as a growing number of people sour on the potential remaining upside of its acquisition by CTL. Meanwhile, Level 3 reported mixed results back on Feb. 8, with earnings of 69 cents per share beating estimates by 25 cents but revenue growth of 1% missing estimates.

LVLT is on the verge of a breakdown below its 50-day moving average, setting the stage for a violation of its five-month uptrend.

The company will next report results on April 27 before the bell. Analysts are looking for earnings of 43 cents per share on revenues of $2.1 billion.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.


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