Utility Stocks May Benefit From Weak Jobs Number

Just this past week we found out that U.S. employers added the fewest jobs in May in nearly 6 years.

Non-farm payrolls came in a +38K vs the +164K average economists were expecting (lowest coming in at +90K).

us non farm payrolls jobs chart_june 3

As many market participants were forecasting for the next rate hike from the Federal Reserve in the near future, following the dismal May jobs reports the Fed Fund futures probability dropped from 34% to 3.8% for June. The odds of a 25 to 50 basis point increase for July stands at 31.3%. Now that Janet Yellen and the other Federal Reserve members are likely to hold off on a move closer to normalization in interest rates for the time being, how can traders and investors position themselves? One area to consider is in the higher yielding assets/sectors (high yield corporate debt, consumer staples, and utilities). Consumer staples and utility stocks have acted as bond equivalents due to the search for yield among investors, so I wouldn’t expect a large rotation out of these groups anytime soon.

Below I take a look at 4 U.S. utility stocks that could see additional gains later this summer. Note that these weren’t the first tickers in the sector I came across. Criteria to shrink the more than a dozen candidates were: forward P/E ratio under 20x, 3%+ dividend yield, projected top and bottom line growth in the next 2 years, market capitalization above $5B, and a breakout to new highs on Friday, June 4th.

Utility Stocks – DTE Energy (DTE)

utility stocks dte energy trading chart bullish setup_june 6

  • DTE Energy shares gapped above the $91-$92 resistance level on Friday and were able to add to those gains by the close. A move to the key psychological level of $100 in the next few months isn’t out of the question.
  • DTE fundamentals: trades at a forward P/E ratio of 17.65x (2017 estimates), price to sales ratio of 1.65x sales, and 1.84x book value. The company pays a 3.20% dividend (next ex-dividend date is June 16th).

Utility Stocks – Alliant Energy (LNT)

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