The supposedly safe-haven utilities sector traded at a 7% discount to the broad-based S&P 500 Index through the first half of 2020 as investors shun the group for companies poised to benefit from the pandemic and jump into market darling FAANG stocks. However, the underperforming utilities segment caught a bid Wednesday after the June Fed minutes revealed that FOMC members stressed the need for prolonged accommodative monetary policy amid ongoing uncertainty and considerable risks to the economic outlook.
Years of low interest rates make utilities stocks more attractive as investors chase higher-paying yields. Currently, the sector offers an average 3.95% yield compared to just 0.673% for the U.S. 10-year Treasury Note. Moreover, servicing debt becomes more affordable for capital-intensive utilities companies, allowing them to continue funding infrastructure for future growth.
Below, we look at three bellwether utilities players and identify important technical levels to watch.
NextEra Energy, Inc. (NEE)
NextEra Energy, Inc. (NEE) generates, transmits, and distributes electricity to roughly 5 million retail and wholesale customers in North America. The Florida-based power supplier disclosed first quarter adjusted earnings of $2.38 per share on total revenues of $4.6 billion. Both metrics surpassed Street expectations and grew 8.2% and 13.2%, respectively, from a year earlier. Analysts have a 12-month price target on the stock at $260.40, indicating 6% of upside from Wednesday's $246.26 close. As of July 2, 2020, NextEra Energy shares have a $120.53 billion market capitalization, offer a 2.33% dividend yield, and are trading 2.85% higher on the year.
The stock has oscillated within an orderly 30-point ascending channel since mid-April, providing several high-probability setups for those who favor range-bound strategies. Swing traders should consider buying the recent dip that finds significant support from the pattern's lower trendline and the closely aligned 50- and 200-day simple moving averages (SMAs). In terms of trade management, aim to book profits near the channel's top trendline around $270 and protect capital with a stop-loss order placed under this week's low at $233.76.
Xcel Energy Inc. (XEL)
Minneapolis-based Xcel Energy Inc. (XEL) provides electricity and natural gas services to over 5 million customers, primarily in Midwestern states. Despite the $33.71 billion energy giant reporting an 8.2% year-over-year decline in first quarter profit, management still anticipates full-year earnings growth of between 5% and 7%. The company also intends to increase its dividend rate and targets a payout ratio of 60% to 70%. As of July 2, 2020, Xcel Energy stock issues a 2.75% dividend yield and has gained 2.45% year to date.
Throughout the coronavirus pandemic, Xcel Energy shares have formed a broad symmetrical triangle that provides well-defined support and resistance areas. The stock rallied nearly 3% from the pattern's lower trendline and 200-day SMA Wednesday in a move that may result in a breakout in upcoming trading sessions. Those who enter at these levels should look for a retest of the 52-week high just above $70 but cut losses on a breakdown below the triangle's lower trendline.
Duke Energy Corporation (DUK)
Duke Energy Corporation (DUK) distributes and sells regulated utilities to over 7 million customers in the Carolinas, Indiana, Florida, Ohio, and Kentucky. The company missed analysts' first quarter earnings expectations and saw its top line contract 3.5% from the March 2019 quarter due to milder winter weather and severe early spring storms. On the valuation front, the energy provider trades at around 16 times this year's earnings, slightly below its five-year average multiple of 17 times. As of July 2, 2020, Duke Energy stock is down 8.1% year to date but has added nearly 7% over the past three months. Investors receive an enticing 4.73% dividend yield.
Duke Energy shares have remained stuck in a three-month trading range after an initial sharp rebound from their March 23 capitulation low. The stock has held support near the range's lower trendline and psychological $80 level this week, with gains accelerating through Wednesday's session. Furthermore, a relative strength index (RSI) reading below 50 gives price ample room to march toward overhead resistance at $92.5 before consolidating. Traders should limit downside with a stop situated beneath the June low at $77.58.