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Executive Summary

Opportunity Knocks

By Roger S. Conrad on Mar. 5, 2018

The Dow Jones Utility Average hasn’t revisited its Feb. 9 low thus far. But the index is still down almost 15 percent from the all-time high reached in mid-November.

Weakness in income-oriented equity groups reflects the pullback in the overall market and fears of rising interest rates.

However, at these levels, very few high-quality names in our Utility Report Card remain at unsustainably high valuations and only six of our Model Portfolio holdings trade above our value-based buy targets—a stark contract to only a few months ago.

Fourth-quarter results and earnings guidance also underscore that tax reform will provide more of a longer-term tailwind for the utility sector than a near-term headwind.

Developments on the regulatory front have also been positive, with Duke Energy Corp (NYSE: DUK) settling its rate amicably and the Texas Public Utility Commission finally approving Sempra Energy’s (NYSE: SRE) takeover of Oncor Electric Delivery.

By and large, utilities and the other essential-service companies in our coverage universe reported solid earnings and issued encouraging guidance.

Bottom Line: The stocks will only fall so far as weakness in the market and interest rate fears pull them.

Although the recent pullback has weighed on our overall returns, investors who followed our lead and took partial profits over the summer should have plenty of dry powder at their disposal.

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