It’s pretty clear that the big move we made off of the February lows may take some time to digest, and while the overall picture looks better, the earnings season will surely dictate the direction for at least part of the second quarter. One good avenue for investors to consider, especially with yields sinking once again, is maybe to take profits in cyclicals and move some of those gains to utility stocks.
While U.S. Treasury bonds sold off somewhat Wednesday, the 30-year bond ended the day at a 2.58% yield, which matches the yield from this time last year. That comes despite the fact that the Federal Reserve raised interest rates in December and probably will raise them twice this year. Utilities hit some profit-taking selling and have backed up to decent entry levels.
We screened the Merrill Lynch utility stock research universe and found four Buy-rated companies that make good sense.
Many of the Wall Street firms that we cover are still very positive on utilities, and this company is highly rated. Dominion Resources Inc. (NYSE: D) is one of the nation’s largest producers and transporters of energy, with a portfolio of approximately 24,600 megawatts of generation and 6,455 miles of electric transmission lines. Dominion operates one of the nation’s largest natural gas storage systems, with 928 billion cubic feet of storage capacity, and serves utility and retail energy customers in 13 states.
Dominion operates via three divisions. Dominion Virginia Power is focused on regulated electric transmission and distribution that serve residential, commercial, industrial and governmental customers in Virginia and North Carolina. Dominion Generation generates electricity through coal, nuclear, gas, oil, hydro and renewable sources. Dominion Energy centers around regulated natural gas distribution and storage.
The stock was hit recently as the company offered shares to help with its combination with Questar, as well as to repay short-term debt, including commercial paper. This drop in price may offer an outstanding entry point for investors.
Dominion investors are paid a solid 3.85% dividend. The Merrill Lynch price target for the stock is $79, and the Thomson/First Call consensus target is at $76.74. The stock closed most recently at $72.75 per share.
This higher yielding company makes the buy list at Merrill Lynch. Entergy Corp. (NYSE: ETR) is an integrated energy company engaged primarily in electric power production and retail distribution operations. It owns and operates power plants with approximately 30,000 megawatts of electric generating capacity, including nearly 10,000 megawatts of nuclear power, making it one of the nation’s leading nuclear generators. The company delivers electricity to 2.8 million utility customers in Arkansas, Louisiana, Mississippi and Texas. Entergy has annual revenues of more than $12 billion and approximately 13,000 employees.
Many analysts like the position of the company’s plants, as they supply some of the petrochemical industry along the Gulf Coast. Petrochemical plants and liquefied natural gas (LNG) export facilities are springing up all across the central Gulf Coast. For the petrochemical industry, the boom is driven by demand, not supply, and so the current lower gas prices actually help this growth trend, which has been a solid revenue silo for Entergy.
Entergy investors are paid an outstanding 4.4% dividend. The Merrill Lynch price target is $80, while the consensus is posted at $75.81. The stock closed Wednesday at $77.21.
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