Roger S. Conrad

At the midway point of 2016, the utility and telecom sectors have emerged as the top performers in the S&P 500, delivering total returns of more than 20 percent. Given the make-up of our model Portfolios, we’re not complaining. Our Conservative Income Portfolio holdings have rallied an average of about 25 percent this year, while the names on our Top 10 DRIPs list have gained an average of almost 30 percent. The Aggressive Income Portfolio has posted an average total return of about 15 percent, while the spotlighted stocks from each issue have gained an average of 14 percent. Although we remain confident in our holdings’ underlying businesses and growth prospects, stretched valuations suggest that the recent momentum-driven gains won’t last. Historically, the risk of a pullback is elevated whenever the Dow Jones Utilities Average trades at more than 20 times earnings and yields less than 3 percent—a cause for caution. We continue to emphasize the importance of taking advantage of this rally to reduce risk, rebalance your portfolio and take some profits off the table in big winners. This dry powder will come in handy during the inevitable pullback.  

Despite all the focus on the US presidential election, gubernatorial races and ballot initiatives at the state level will exert more of an influence on utility stocks. We review the key races and ballot measures as well as their potential implications for utilities in these states.

Size isn’t everything in the telecom sector, but it is important.  

Traders continue to rotate into utility and telecom stocks because of their defensive qualities and above-average yields. But with more than half of our Portfolio holdings trading above our value-based buy targets, investors should exercise caution.

We've added a new stock to our Top 10 DRIPs.

When the risk-off trade inevitably comes back in vogue, expect this defensive master limited partnership to benefit from the flight to quality.

We review the recent mergers and acquisitions news in our coverage universe, including a flurry of deal closures and the sale of the former TXU Corp, now called Oncor.

The Brexit-driven selloff hasn't changed our mind on UK-based utility stocks, but it has created an opportunity for aggressive investors to buy this Spanish telecom.

Eighteen of the holdings in our model Portfolios trade above our value-based buy targets, while several have reached levels where investors should consider taking some of their profits off the table.

Roger Conrad will host an exclusive Live Chat for Conrad's Utility Investor subscribers on July 19, 2016, at 2:00 p.m.