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Investing Topics: Investment Strategy

An Eye on Washington and Two Eyes on Fourth-Quarter Earnings

By Roger S. Conrad on Feb. 12, 2017
Although interest rates and federal policies can affect the stock market and create challenges and opportunities, how companies have positioned themselves and how management teams react to changes ultimately shape investors’ returns.

Picks and Pans for 2017

By Roger S. Conrad on Jan. 10, 2017
At the start of the new year, we roll out our top picks and pans among the various segments represented in our Utility Report Card. Last year’s picks generated an average total return of 22.9 percent, while our pans posted a 2.1 percent gain. We hope to build on this success in 2017.

Lessons from 2016 and Outlook for 2017

By Roger S. Conrad on Jan. 10, 2017
Two of our three model Portfolios outperformed the S&P 500 and Dow Jones Utility Average handily last year, while our aggressive picks lagged. We review what went right and what went wrong, with an eye toward refining our process.

The Correction Continues, But Don’t Blame the Election

By Roger S. Conrad on Nov. 16, 2016
The S&P 500 Utilities Index has tumbled in the wake of the 2016 election, as the conventional wisdom holds that the results were bad for utility stocks. Rising interest rates and the prospect of improved economic growth if the Trump administration delivers on its promised fiscal stimulus have given portfolio managers an excuse to rotate out of utility stocks and into cyclical fare. Unsustainably high valuations made this decision all the easier. Conrad’s Utility Investor subscribers who followed our lead over the summer and took partial profits on their big winners and added exposure to ProShares UltraShort Utilities (NYSE: SDP) should be doing reasonably well, all things considered. This exchange-traded fund, which delivers two times the Dow Jones US Utilities Index’s inverse daily performance, has rallied by about 25 percent—and we see the potential for more upside. However, the most important point to take away from this issue of Conrad’s Utility Investor is that the underlying business conditions for our favorite utilities haven’t changed. The sector remains in excellent financial shape and has its best growth prospects in decades. Unfortunately, valuations remain frothy. Election 2016 has created far more opportunity than risks for best-in-class utilities. But potential regulatory tailwinds are only one of the many factors that will drive returns going forward.  

Riding the Trump Trade

By Roger S. Conrad on Nov. 16, 2016
Our bet against utility stocks has continued to pay off, while the selloff in the sector has pulled prices closer to our value-based buy targets. Stay disciplined.

What’s Next for Utility Stocks?

By Roger S. Conrad on Oct. 11, 2016
With utility stocks down more than 10 percent since early July, our approach of high-grading the model Portfolios, taking partial profits on overextended names and betting on a pullback has paid off. We weigh the scenarios that could emerge in coming months and revisit our investment strategy.

Stick with the Plan

By Roger S. Conrad on Oct. 11, 2016
The investment strategy we’ve pursued over the past several months has paid off thus far. And after the recent pullback in utility stocks, two of our longtime favorites once again trade below our value-based buy targets.

Down, But Still Expensive

By Roger S. Conrad on Sep. 12, 2016
Utility stocks’ summer swoon picked up steam, with the Dow Jones Utilities Average down more than 9 percent from its high in early July. The financial infotainment industry has blamed this pullback on speculation that the Federal Reserve could raise interest rates this fall. In reality, the run-up in utility stocks to record valuations set the stage for momentum-seeking investors to use any excuse as an opportunity to take profits. Expect to hear a lot more about US monetary policy and its implications for utility stocks if this correction deepens in coming weeks. But bear in mind that weakness in the US economy likely will prevent the Federal Reserve from further tightening this year and that market history reveals scant correlation between utility stocks and the direction of interest rates. Consider that when the Federal Reserve hiked the benchmark interest rate by 425 basis points between June 2004 and June 2006, the Dow Jones Utilities Average generated a total return of more than 60 percent—almost four times the gain posted by the S&P 500. Concerns about rising interest rates may give investors an excuse to sell utility stocks in the near term, but frothy valuations not seen since the 1960s will be the real cause. At these levels, momentum-seeking investors tend to have itchy trigger fingers. Against this backdrop, we continue to err on the side of conservatism and bide our time for utility and telecom valuations to revert to the mean, at which point will look to deploy the dry powder we’ve accumulated by exiting riskier positions and taking partial profits on big winners.

More Downside to Come?

By Roger S. Conrad on Sep. 12, 2016
The recent selloff in utility stocks has been a boon for our hedge position, but the sector still trades at historically elevated valuations. Investors should stick with our three-part game plan for navigating this challenging market.

Utilities Sell Equity at the Right Time and for the Right Reasons

By Roger S. Conrad on Aug. 26, 2016
The recent spate of equity issuance is yet another sign of frothy valuations in the utility sector, but these moves set the stage for future growth. Investors should bide their time and wait for a pullback to buy our favorite utility stocks.

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ABOUT ROGER CONRAD

Roger S. Conrad needs no introduction to individual and professional investors, many of whom have profited from his decades of experience uncovering the best dividend-paying stocks for accumulating sustainable wealth. Roger b