Seeking Value and Shunning Value Traps Sector by Sector

The Dow Jones Utility Average has returned 15.1 percent annually since the start of the bull market in March 2009. So far in 2019, the pace has been twice that.

Utility stocks have benefitted from the desire to buy American in a trade challenged world, their reputation for solid defense, falling interest rates’ positive impact on borrowing costs and yield appeal, and the outlook for accelerating earnings growth next year while other industries stall.

As we head into the fourth quarter, each of these drivers appears to have legs. But the DJUA’s current P/E is north of 23 times, the highest since the end of 2000. And its dividend yield is under 3 percent, the lowest since late 2007, immediately prior to the crash of 2008-09.

Investor expectations are higher still for sector leaders like NextEra Energy (NYSE: NEE), which has bested the DJUA by 10 percentage points with a 36 percent year-to-date return. Fellow favorite WEC Energy Group (NYSE: WEC) fared better still at 42 percent.