Portfolio Article

Even on washout trading days like April 4, 2025, some stocks gain ground. Friday’s Utility Report Card winners were basically a handful of non-US stocks. The long-lagging utility sector has gained strength since featured in the February issue.

Doom or boom: The stock market of early 2025 can’t seem to make up its mind. Last week ended on a good note for most of the Utility Report Card coverage universe. And several Portfolio stocks are already sitting on sizeable year-to-date gains. Those include...

From Deepseek AI to federal government upheaval: There’s been no shortage of stock market-moving headlines since the January issue of Conrad’s Utility Investor posted. Utilities and essential services stocks aren’t known for volatility. But several have taken investors on wild rides over the last month.

For the Conrad’s Utility Investor model portfolios, 2024 was a very good year. The Conservative Portfolio with its focus on high income, safety and long-term capital appreciation posted a total return of 15.8 percent. The Top 10 DRIPs’ dividend reinvestment strategy delivered a compound gain of 28 percent. And the Aggressive Holdings’ higher risk/return focus fared best of all, with a 30.2 percent return.

Other than it’s the pending close of the tax year, there’s nothing magical about the final weeks of the year for investors.

The Dow Jones Utility Average’s year to date return is now 20.5 percent. That’s a decline of around -1.4 percent since the Federal Reserve pivoted to lower interest rates on September 18. The DJUA is once again lagging well behind the S&P 500, which as of Friday’s close was sitting on a 27 percent return. And it’s well behind the Nasdaq 100’s 26 percent plus return as well.

There’s less than three months to go in 2024. And utilities and essential services stocks are already set for their most profitable year this decade. In fact, just a normal seasonally strong Q4 performance would produce the Dow Jones Utility Average’s biggest gains since 2000. The DJUA’s 23.9 percent year-to-date gain puts it ahead of the S&P 500’s 20.8 percent, as well as the Nasdaq 100’s 18.4 percent. And utilities have so far outpaced rivals in the equity income universe as well, with the S&P REIT Index ahead just 12.9 percent and the Dow Jones Select Dividend Index (DVY) up 17.3 percent.

Big utility stocks stayed on a winning streak last month. The Dow Jones Utility Average is now up nearly 20 percent year-to-date. That’s about 10 percentage points better than the Big Tech stocks in the Nasdaq 100. And it’s out ahead of the S&P 500’s 14.5 percent. Despite the rally, utility stocks also remain historically under owned. The biggest in the S&P 500—NextEra Energy (NYSE: NEE)—has crept up to #52 from #55 a month ago. But it’s less than a third of a percentage point of the overall index. And you have to go down to 101th place to find another utility, Southern Company (NYSE: SO) at just 21 basis points of the index.

The Dow Jones Utility Average lagged the S&P 500 by 12.5 percentage points in the first half of 2024. But the first month or so of Q3 has witnessed a dramatic reversal of fortune: It’s utilities beating the broad market average by more than 14 points. And the DJUA is more than 18 points ahead of the Big Tech stocks in the Nasdaq 100. There are several reasons why this great rotation will continue. First, after roughly a year and a half of underperforming the broad market and Big Tech in particular, utility stocks are greatly under-owned by giant passively and actively managed investment portfolios that dominate the market.

Utility stocks had their moments in first half 2024. But with the Federal Reserve sticking to a “higher for longer” interest rate policy, it’s little surprise the Dow Jones Utility Average finished the first six months of the year well behind broader stock market averages, lagging the S&P 500 by 12.5 percentage points. Boosted mainly by strong performance of four stocks—Constellation Energy (NYSE: CEG), MDU Resources (NYSE: MDU), NextEra Energy (NYSE: NEE) and Vistra Corp (NYSE: VST)—the Conrad’s Utility Investor model portfolios did somewhat better.