Four Keys to the Next 12 Months

With 90 percent of the companies in our Utility Report Card having reported quarterly results, five times as many names increased their earnings guidance than those that revised their outlook lower.

Our favorite utilities have continued to deliver the goods and look well-positioned to weather any storms, thanks to their limited operational risk, supportive regulators, low costs of capital and exposure to various growth drivers.

Despite solid third-quarter results from most utilities, the Dow Jones Utilities Average has given up 3.6 percent of its value in the fourth quarter—usually a period of seasonal strength.

Some of this weakness reflects expectations that the Federal Reserve will raise interest rates, eroding the value of utilities’ dividends. Never mind that the Dow Jones Utilities Average outperformed during the Fed’s last tightening cycle or that normalizing monetary policy will occur gradually.

With technical indicators suggesting that US equities could slip into a bear market next year, we’ve taken profits on a few big winners and will stick to our tried-and-true strategy of buying high-quality names when they trade at favorable valuations.