Roger S. Conrad

Last September, I highlighted opportunities resulting from what was then a great deal of turbulence in emerging markets. By December, the selloff had finally caught up to the US market. For the highest quality global utilities like Enel SpA (Italy: ENEL, OTC: ENLAY), however, the bottom had been in since October. As a result, they were havens during the worst of the selling and went on to rally strongly in the first quarter.

There’s much to like in Comcast Corp’s (NSDQ: CMCSA) first quarter results.

First quarter results are in for US Telecom’s Big Two. The most important takeaway by far: Both companies remain on track with financial results, long-term strategy and building long-term shareholder value.

While much of the rebound in our CUI Conservative Income Portfolio and bond holdings has been due to reduced economic fears, the fact these companies have demonstrated strength in operating results has no doubt helped prices recover over the past four months.

Whatever happens to Berkshire Hathaway will have huge consequences not just for shareholders, but for the industries it operates in as well - including electricity.

2019 has started out with a bang for utilities and essential services stocks. The Dow Jones Utility Average’s 10.2 percent first quarter return was one of its best showings in history. And the 38 stocks in our Conservative Holdings, Aggressive Holdings and Top 10 DRIPS are higher by 15 percent.

This positive momentum is certainly a welcome change from lackluster 2018, and particularly the vicious fourth quarter selloff. But it also brings reasons for investors to be wary.

First, really big openings followed by fantastic finishes are extremely rare for utilities, the most recent being in 2000. Typically, stock prices level off in the following months. I’m encouraged that our Portfolio gains were more driven by positive business developments at individual holdings than the sector surge. But with the DJUA marking a new all-time high last month, utility valuations are back in the stratosphere.

From all indications, most Utility Report Card companies should report strong first quarter earnings and guidance updates in the coming weeks. But catalysts for further upside now face a high bar. It’s also noteworthy that more than a few best in class names lagged in the first quarter, despite very strong business performance.

As I pointed out in the March 21 Income Insights “The Fed Turns a Page,” the Federal Reserve’s decision to terminate its monetary tightening cycle carries a huge positive for capital intensive companies like utilities: A big drop in borrowing costs that’s provided a fresh opportunity to lock in cheap, long-term financing. This month’s Utility Report Card comments highlight this advantage, as well as analysis of other Quality Grade criteria.