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The Fed Pivots: Stay Patient For Utility Profits

By Roger S. Conrad on Oct. 3, 2024

On September 18, the Federal Reserve cut the benchmark Fed Funds rate by 50 basis points, to a range of 4.75 to 5 percent. The long awaited pivot from “higher for longer” interest rates ignited an investment media frenzy. But since then, the Dow Jones Utility Average is up less than 1.5 percent, barely matching the S&P 500.

That’s hardly surprising. From mid-April when rate cut talk started heating up until the Fed finally acted, the DJUA soared nearly 30 percent. So utility stocks were already pricing in the initial shift.

With Utility Stocks Running It’s Time to Get Tactical

By Roger S. Conrad on Sep. 9, 2024

Not every big utility stock hit a 52-week high in the past month. But with the Dow Jones Utility Average up nearly 20 percent year to date, a baker’s dozen Portfolio stocks sell for more than their highest recommended entry points. That’s a massive turnaround from earlier this year. Consistent, strong earnings have been one factor: 26 Utility Report Card companies raised guidance after releasing Q2 results.

And only one of the 8 that cut was actually a regulated utility, weather-impacted gas distribution utility Spire Inc (NYSE: SR). The health and growth of underlying businesses always drives long-term investor returns. As the Portfolio discussion highlights, Conrad’s Utility Investor recommendations are on the right track.

Rotation in Progress but Quality Still King

By Roger S. Conrad on Aug. 5, 2024

The nascent trends I highlighted in the July 17 Alert “About that Volatility” have picked up steam since. That includes the likelihood of a Federal Reserve rate cut, as economic growth tapers and inflation moderates. Utilities and Big Tech stocks have noticeably traded places in the past month. The Dow Jones Utility Average is now ahead by 17.6 percent year-to-date, outpacing the suddenly weakening S&P 500 at 13 percent and the Nasdaq 100’s 10 percent. I’ve said for a while that interest rates were the key to utility stock prices short-term. And for at least the past few weeks, the trend has been our friend. But I see two key reasons to be cautious.

Utilities’ Lackluster Momentum in 2024 Means 2nd Half Opportunity

By Roger S. Conrad on Jul. 8, 2024
After an up and down month, the Dow Jones Utility Average’s year-to-date return is now just 5 percent. That’s still a percentage point better than the Dow Jones’ Select Dividend Index. But utilities are now well behind the Nasdaq 100’s 21.7 percent and the S&P 500 at 17.5 percent. Interest rates remain the key driver of utility stock returns. And with money market funds yielding north of 5 percent and the Federal Reserve still not pivoting to lower rates, price momentum is against us.

Utility M&A Heats Up But Play the Long Game

By Roger S. Conrad on Jun. 10, 2024
Utility mergers and acquisitions are heating up again. But utility stocks’ spring momentum has at least temporarily cooled. The Dow Jones Utility Average is still up solidly with a 6.3 percent year-to-date return, much better than most dividend paying sectors. But utilities are again lagging returns of 13.3 percent for the Nasdaq 100 and 12.8 percent for the S&P 500. The reason for the reversal: Yet another shift in investor expectations for Federal Reserve policy. And the consensus now is we’ll see few if any rate cuts this year.

Renewable-Focused Utilities: Joining Energy’s March Higher

By Roger S. Conrad on May. 9, 2024
There are no energy stocks in the S&P 500’s top 10. The biggest utility, NextEra Energy (NYSE: NEE), is only #56. And even all utilities and oil and gas stocks together are just 6 percent of the stock market’s premier blue chip index. That’s historic underweighting. But since oil prices bottomed in spring 2020, the S&P Energy Index has beaten the technology-stock laden S&P 500 by nearly 160 percentage points.

Between AI and M&A Utilities will Get Their Due

By Roger S. Conrad on Apr. 3, 2024
The Dow Jones Utility Average closed out Q1 barely in the black and lagging the S&P 500 by about 9.3 percentage points. The average total return for CUI portfolio stocks was a bit better at 5.8 percent. But the bottom line is this is still a stock market chasing momentum and growth stories, rather than value and dividends. The essential services stocks that have shone the most so far in 2024 have been tightly connected to popular investment themes like nuclear power, such as our top performer Vistra Energy (NYSE: VST), or else beneficiaries of M&A. MDU Resources’ (NYSE: MDU) pending spinoff of Everus Construction Group in late 2024, for example, is exciting investors as much as last year’s of materials company Knife River (NYSE: KNF) did not—mainly because KNF has roughly doubled in value since.

Eye on the Bottom Line: Our Companies Have Never Been Stronger

By Roger S. Conrad on Mar. 11, 2024

So far in 2024, the Dow Jones Utility Average lags the S&P 500 by nearly 10 percentage points. But over the past month, buying interest has picked up for at least a handful of CUI portfolio companies. Leading the way are nuclear powered Constellation Energy (NYSE: CEG) and Vistra Energy (NYSE: VST), with year-to-date gains of 46 and 57 percent respectively. But even underperforming Avangrid Inc (NYSE: AGR) now has a double-digit 2024 return, as parent Iberdrola SA (Spain: IBE, OTC: IBDRY) has made a non-binding all-cash takeover offer that’s likely to go higher. I continue to believe utilities as a sector won’t really capture upside momentum until there’s a genuine Federal Reserve pivot to lower interest rates. And with the central bank reactive as ever to the latest data point, investors have no choice but to be patient.

Utility Business is Booming, Stocks Will Take Longer

By Roger S. Conrad on Feb. 12, 2024

About a quarter of the 172 Utility Report Card members have reported calendar Q4 results and updated guidance. The top takeaway: There’s still absolutely no sign of the utility earnings Armageddon that’s now reflected in sector stocks’ bear market-like prices.

One reason for utility business strength is simply rising demand. Rapid adoption of artificial intelligence has massively and relatively suddenly begun ramping up electricity usage at data centers. And as my feature article highlights, utilities are increasing investment plans in response, which are the primary drivers of their long-term growth.

Falling Borrowing Costs = Rising Stock Prices

By Roger S. Conrad on Jan. 11, 2024

The Dow Jones Utility Average finished 2023 with a -5.2 percent loss including dividends. That’s the worst performance for utilities since 2008.

It’s a far cry from that year’s -27.8 percent pummeling. But the DJUA’s 31.3 percentage point underperformance of the S&P 500 is actually worse than 1999—when a similar combination of rising interest rates and soaring technology stocks soured many investors on dividends.

So in 2024, utility stocks have outperformed, as they have since early October. One big reason to expect more gains: A massive decline in companies’ borrowing costs that’s occurred well in advance of any Federal Reserve easing.

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ABOUT ROGER CONRAD

Roger S. Conrad needs no introduction to individual and professional investors, many of whom have profited from his decades of experience uncovering the best dividend-paying stocks for accumulating sustainable wealth. Roger b