Utilities could substantially outperform this year
Utilities traditionally are a recession safe haven, although in March they fell along with the broader market. There is reason, however, to think they will outperform going forward. According to an analyst poll conducted by FactSet, analysts expect utilities to be the sector least affected by the pandemic, with 2020 earnings down only 1.6% from pre-pandemic forecasts. The next strongest sector, information technology, is expected to take a 6.5% hit. Of the S&P 500 companies that have confirmed their previous 2020 guidance, 53% are in the utilities sector. Here's the link to the FactSet poll:
www.factset.com/hubf...gsInsight_061220.pdf
Although earnings forecasts for the sector are down only 1.6%, utilities stock prices are down about 16% from their pre-pandemic peak. That suggests that utilities are now trading at a significant discount. Additionally, RYU has a nearly 3% dividend yield and has been a growth sector due to the widespread adoption of renewable energy technologies by both corporations and governments. In 2019, the utilities sector roughly doubled its earnings over the previous year.
In terms of technicals, utilities recently made a bullish MACD cross on the weekly chart. There's a little bearish divergence on the histogram, and the daily MACD is below the signal line, which makes some short-term price weakness a real possibility. For the longer term, however, the technical setup looks good. RYU is sitting atop a block of support on the volume profile, whereas to the upside there's much less volume profile resistance.
Note that RYU is not optionable. If you're like me and you'd like to buy some long-term (2022) option calls, you could look at the XLU S&P 500 utilities fund. I prefer equal-weight funds because they tend to outperform long-term, but in addition to being optionable, XLU has a better dividend yield and a better expense ratio than RYU.
www.factset.com/hubf...gsInsight_061220.pdf
Although earnings forecasts for the sector are down only 1.6%, utilities stock prices are down about 16% from their pre-pandemic peak. That suggests that utilities are now trading at a significant discount. Additionally, RYU has a nearly 3% dividend yield and has been a growth sector due to the widespread adoption of renewable energy technologies by both corporations and governments. In 2019, the utilities sector roughly doubled its earnings over the previous year.
In terms of technicals, utilities recently made a bullish MACD cross on the weekly chart. There's a little bearish divergence on the histogram, and the daily MACD is below the signal line, which makes some short-term price weakness a real possibility. For the longer term, however, the technical setup looks good. RYU is sitting atop a block of support on the volume profile, whereas to the upside there's much less volume profile resistance.
Note that RYU is not optionable. If you're like me and you'd like to buy some long-term (2022) option calls, you could look at the XLU S&P 500 utilities fund. I prefer equal-weight funds because they tend to outperform long-term, but in addition to being optionable, XLU has a better dividend yield and a better expense ratio than RYU.
Comment:
One more thought: utilities would likely benefit from an infrastructure-oriented stimulus bill. And since the Democrats have been the spend-on-infrastructure party, I think they could benefit from a Biden victory, where other industries might not.
Comment:
The utilities trade appears to be heating up today, with sector ETFs having remained solidly above the VWAP on a day when the rest of the market is struggling. That's probably because we're headed into earnings season, and utilities earnings reports should show relatively little earnings impact from the pandemic year-over-year.
Comment:
Since I can't post images here on TradingView, I point you to my Twitter thread on utilities that makes the case for their being the only attractive value in the market right now: twitter.com/WSPZoo/s.../1278733568634523648
Comment:
Utilities have been rallying this week after CPI data showed consumer energy prices up several percent. However, next week we will start to get some earnings reports for the sector, and I'm a little worried. Expectations for the sector are high, and I think there's a chance that results will broadly disappoint. I've taken profit on a portion of my position here.