Value vs Momentum

Rarely has the difference between leading and lagging stocks been as stark as today, thanks in part to the rise of passive investment strategies and exchange-traded funds that offer one-stop exposure to a sector, industry, or theme.

And with the equity market trending higher, investors rightly question why they should go out on a limb by putting your money into an underperformer?

Our model Portfolios have benefited from investors’ headlong rush into the utility sector, though 17 of our picks trade above our value-based buy targets. Other stocks can’t seem to catch a break, regardless of their earnings.

Historically elevated valuations in the utility sector also create a scenario where investors tend to sell first and ask questions later, a dynamic that can create compelling buying opportunities.

Remember what sparked a selloff in Dominion Energy (NYSE: D) in late January and early February 2017?

Memory failed me despite all the time I spend in front of a Bloomberg terminal, taking notes on earnings calls and poring over quarterly results—I had to revisit my Feb. 3 Alert for all the gory details. This first-quarter hiccup fades into the background when you consider management’s guidance for stepped-up dividend growth and the stock’s 19 percent total return since that bout of profit-taking.

In this market, investors must remain nimble and have the courage of conviction to distinguish real buying opportunities from falling knives—that comes from understanding a company’s underlying business. That’s why we dedicate so much time to analyzing quarterly results in the Utility Report Card and attending industry conferences.