The Next Leaders Are... Electric Utilities? ETR, CEG, AYE, NRG
NRG Energy, Entergy Corporation, Allegheny Energy, and Constellation Energy Group top the short list of great stocks in a now-bullish utility sector.
Don't look now, but there's a new sensation taking a market leadership role. It's.... utilities? That's right. Electric utilities to be specific. Don't laugh though - some of these stocks like NRG Energy, Inc. (NYSE:NRG), Entergy Corporation (NYSE:ETR), Allegheny Energy, Inc. (NYSE:AYE), and Constellation Energy Group, Inc. (NYSE:CEG) - have been cut in half or more over the last twelve months, but seem to be coming back with a vengeance (and something to prove) now. I wouldn't be shocked to see this usually-benign group outpace most, if not all, other sectors in the coming months. First things first though.
The fact that Allegheny Energy, Inc. (NYSE:AYE) shares fell from $65 to $21 in a little over a year is stunning. That fact that AYE is still only hovering around $23 is even more stunning, especially when its forward-looking P/E ratio is sub-$10. Allegheny Energy boasts stronger margins and a lower per-share price - relative to revenue and profits - than the vast majority of its competition.
Constellation Energy Group, Inc. (NYSE:CEG) managed to make an even nastier loss, from a peak of $107 to a low of $13 in about nine months. Granted, Constellation Energy Group somewhat deserved the beating. CEG shares do not, however, deserve to still be in the low $30's, stifled by a troubled history. That said, the market's slowly (but at a growing pace) coming around to Constellation Energy Group; the stock's pushing out of a consolidation zone right now. (Also factor in three straight earnings 'beats' and a forward-looking P/E of 10.5.)
NRG Energy, Inc. (NYSE:NRG) had probably at one point done more in the way of recovery than any of its peers, bouncing from $15 to $28. When, NRG fall back to $23 though, a lot of investors just wrote the stock off for good. Big mistake. That recent low of $23 was founded by support at the 200 day moving average line. NRG Energy seems to be pushing off of it as of today, renewing an uptrend most assumed was dead.
And Entergy Corporation (NYSE:ETR)? After hitting a ceiling at $81.80 since late July, investors can finally be excited again - ETR finally broke above that resistance line with Friday's move to nearly $83. It was a well-deserved move too... Entergy Corporation is plenty profitable, and boasts a forward-looking multiple of 12.3.
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I could go on, but you get the idea - these stocks are standouts within the utility group for fundamental as well as technical reasons. That's not the only reason I like them specifically though.
I looked at the idea in detail yesterday, so I won't rehash a sector rotation strategy again today. I'll just point out that telecom and utilities have been the worst performers since the March bottom, but have been the best performers this week. Click here for a reality check - the worst are becoming the best, and the best are becoming the worst.
Given the charts and the data to-date, I have every reason to think we're seeing an emerging trend.
For what it's worth, here's a fundamental snapshot how all the major electric utility stocks stack up. As you can see, Constellation Energy Group, NRG Energy, Entergy Corporation, and Allegheny Energy are all (1) under their average 5-year P/E, and (2) are all close to their lowest P/E level of the last twelve months. The same is basically true of all electric utility stocks, but it's especially true of the four I picked as my favorites.
Bottom line? Oversold in the long run, starting to strengthen in the short run, and still undervalued from a long-term perspective. It's an investment trifecta. I'm bullish on the group, and those four names in particular.
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The fact that Allegheny Energy, Inc. (NYSE:AYE) shares fell from $65 to $21 in a little over a year is stunning. That fact that AYE is still only hovering around $23 is even more stunning, especially when its forward-looking P/E ratio is sub-$10. Allegheny Energy boasts stronger margins and a lower per-share price - relative to revenue and profits - than the vast majority of its competition.
Constellation Energy Group, Inc. (NYSE:CEG) managed to make an even nastier loss, from a peak of $107 to a low of $13 in about nine months. Granted, Constellation Energy Group somewhat deserved the beating. CEG shares do not, however, deserve to still be in the low $30's, stifled by a troubled history. That said, the market's slowly (but at a growing pace) coming around to Constellation Energy Group; the stock's pushing out of a consolidation zone right now. (Also factor in three straight earnings 'beats' and a forward-looking P/E of 10.5.)
NRG Energy, Inc. (NYSE:NRG) had probably at one point done more in the way of recovery than any of its peers, bouncing from $15 to $28. When, NRG fall back to $23 though, a lot of investors just wrote the stock off for good. Big mistake. That recent low of $23 was founded by support at the 200 day moving average line. NRG Energy seems to be pushing off of it as of today, renewing an uptrend most assumed was dead.
And Entergy Corporation (NYSE:ETR)? After hitting a ceiling at $81.80 since late July, investors can finally be excited again - ETR finally broke above that resistance line with Friday's move to nearly $83. It was a well-deserved move too... Entergy Corporation is plenty profitable, and boasts a forward-looking multiple of 12.3.
--------------------------------------------------------------------
Sign-up for Free to Receive Future Commentary
and Trading Alerts on CEG, AYE, ETR, and NRG.
--------------------------------------------------------------------
I could go on, but you get the idea - these stocks are standouts within the utility group for fundamental as well as technical reasons. That's not the only reason I like them specifically though.
I looked at the idea in detail yesterday, so I won't rehash a sector rotation strategy again today. I'll just point out that telecom and utilities have been the worst performers since the March bottom, but have been the best performers this week. Click here for a reality check - the worst are becoming the best, and the best are becoming the worst.
Given the charts and the data to-date, I have every reason to think we're seeing an emerging trend.
For what it's worth, here's a fundamental snapshot how all the major electric utility stocks stack up. As you can see, Constellation Energy Group, NRG Energy, Entergy Corporation, and Allegheny Energy are all (1) under their average 5-year P/E, and (2) are all close to their lowest P/E level of the last twelve months. The same is basically true of all electric utility stocks, but it's especially true of the four I picked as my favorites.
Bottom line? Oversold in the long run, starting to strengthen in the short run, and still undervalued from a long-term perspective. It's an investment trifecta. I'm bullish on the group, and those four names in particular.
If you'd like to know of any changes in our opinion of CEG, ETR, NRG and AYE , be sure to Sign-Up for our FREE weekly Small Cap Network Newsletter TODAY! Identify quick changes in current market activity and receive timely trading ideas aimed at maximum ROI. Click Here to learn more...
James E. Brumley is a paid contributor of the SmallCap Network. James E. Brumley's personal holdings should be disclosed above. You can also view SmallCap Network's complete disclaimer and disclosure.
