Staying the Course

Will utility stocks avoid their first down year following a January gain since 1987?

Since early August, the Dow Jones Utilities Average has outperformed the broader market, narrowing its year-to-date loss to the mid-single digits. And this basket of utility stocks has rallied in the fourth quarter on 38 occasions since 1969, including a 13.1 percent gain last year.

Although strong business fundamentals and investors’ preference for safety in uncertain times bode well for utility stocks in the fourth quarter, an aging bull market means that investors should remain cautious.

This year, we’ve taken advantage of what the market gives us to exit weaker names and high-grade the Portfolio by adding best-in-class utility stocks when they pull back to favorable valuations. Most of these stocks have posted gains since they joined the model portfolio, while the six stocks we sold have slipped even lower.

With technical indicators suggesting that the epic bull market of the past six years may be winding down, we continue to highlight the strategy of setting buy limit orders to purchase our favorites at dream prices. (See Dream a Little Dream for more on this strategy.)

Four of the stocks on our list have already hit these levels and surged in subsequent trading sessions. Shares of Chevron Corp (NYSE: CVX), for example, have rallied 26 percent since they hit our dream buy price of $70 per share.

Narrowing market leadership and other technical indicators suggest that the S&P 500 could suffer a correction of at least 20 percent in the first half of 2016.

In light of this elevated risk, investors should continue to focus on the highest-quality names, keep some dry powder to take advantage of buying opportunities and consider using our dream prices strategy.

Regardless of whether we’re in a bull or bear market, Conrad’s Utility Investor always strives to steer you toward stocks backed by strong underlying companies—the best way to build sustainable wealth.