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Time to Buy Utility Stocks

NEW YORK (TheStreet) - With the overall stock market overvalued fundamentally and overbought technically it's time to switch some equity assets into the more defensive but buy-rated names in the Dow Jones Utility Average (^DJU). There are 13 buy-rated components of the Dow utility average to choose from including Duke Energy (DUK - Get Report), Con Edison (ED - Get Report) and Southern Co (SO).

In a momentum market investors have been shying away from dividend stocks, but in my judgment it's time to invest for the dividend income that utility stocks provide. The Dow Utility Average ended Tuesday up 6.5% lagging the S&P 500 which is up 26.4%. The utilities sector is 13.5% overvalued with 12 of 16 sectors overvalued by 24% to 38%.

I give the utilities sector an overweight rating as 90.5% of the 211 stocks in this sector have buy or strong buy ratings according to At ValuEngine we show that 97 stocks have strong buy ratings and 52 are in the utilities sector.

Among the 13 stocks in today's post, three are undervalued by 0.5%, 3.1% and 14.1%. Overall 51.2% of all stocks are overvalued by 20% or more but only two of the components of the Dow Utility Average are overvalued by 24.9% and 30.5%. Five stocks in today's post have losses of 2.2% to 22.5% over the last 12 months, while the other eight are up 1.9% to 35.2% over the last 12 months. The reversion to the mean should help utilities as 10 of the 13 are below their 200-day simple moving averages.

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American Electric Power (AEP) ($46.16) is 17.2% overvalued and has a gain of 6.4% over the last 12 months and is just below its 200-day SMA at $46.35 with its 50-day SMA at $46.10. The stock traded as high as $51.59 on May 1 and as low as $41.83 on Sept. 4. My monthly value level is $43.70 with annual pivots at $44.98 and $46.95 and quarterly and weekly risky levels at $47.87 and $49.55.

AES (AES) ($14.49) has a strong buy rating, is 5.9% overvalued and has a gain of 35.2% over the last 12 months and is above its 200-day SMA at $13.09 after setting a multi-year intra-day high at $15.54 on Dec. 4. My semiannual value level is $12.13 with monthly, annual and quarterly pivots at $14.03, $14.38 and $14.81 and semiannual risky level at $15.41.

Centerpoint Energy (CNP) ($23.24) is 24.9% overvalued and has a gain of 16.7% over the last 12 months and is below its 200-day SMA at $23.77. My semiannual value level is $22.34 with monthly and quarterly pivots at $23.71 and $24.03 and semiannual risky level at $26.64.

Dominion Resources (D) ($63.50) is 30.5% overvalued and has a gain of 23.1% over the last 12 months and is above its 200-day SMA at $60.05 after setting an all-time intra-day high at $67.97 on Nov. 18. My quarterly value level is $61.01 with a monthly pivot at $63.77 and semiannual and weekly risky levels at $64.62 and $67.21.

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ED $74.60 0.00%
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Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

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