Utility Stocks in the Late-Stage Bull Market

Momentum-seeking money, which last year helped the utility sector to outperform, has shifted to dividend-paying energy stocks and telecoms since Jan. 28, 2015, when the popular Utilities Select Sector SPDR (NYSE: XLU) hit its all-time high.

In subsequent weeks, the exchange-traded fund has given up more than 7 percent of its value; on the opposite end of the teeter-totter, the S&P 500 Telecommunication Services Index has rallied by roughly the same amount and the Alerian MLP Index has climbed 4.6 percent.

These moves represent a reversal of the trend that held sway from the end of September to the end of January, when the S&P 500’s telecom stocks gave up 7 percent of their value and the Alerian MLP Index dropped by more than 17 percent. Over the same period, Utilities Select SPDR generated a total return of almost 20 percent.

Don’t panic over this latest shift in momentum. This pullback gives savvy investors an opportunity to buy some our favorite utility stocks at more reasonable prices, though a good chunk still trade above our buy targets.