Dow Utilities Outperform S&P 500 in First Quarter

NEW YORK ( TheStreet) -- The S&P 500 gained a solid 10.0% in the first quarter of 2013, but the Dow Utility Average outperformed with a gain of 12.2% as 14 of 15 components have buy ratings. In the second half of March, the S&P gained just 0.5% while utilities gained momentum and tacked on 2.7%.

On March 18, I wrote 12 Sell Downgrades Threaten Dow Transports and since then the Dow Transportation Average has moved sideways to down. Even so, transports were the best performer of the five major averages with a first quarter gain of 17.9%. Transports set an all-time intra-day high of 6291.65 on March 19, and its all-time closing high at 6281.24 on March 14. Today, 14 Dow Transportation stocks remain sell-rated with six rated hold.

On March 26, I wrote Allocate U.S. Holdings to 14 Top Dow Stocks and this morning, following first-quarter benchmark revisions to ValuEngine data, we have 19 buy-rated and 11 hold rated stocks in the Dow Industrial Average. The Dow ended the first quarter with a gain of 11.3% and set a new all-time high at 14,605.72 on Monday, and new all-time closing high at 14,578.54 on the last day of the first quarter.

Following the benchmark revisions, www.ValuEngine.com shows that 59.9% of all stocks are overvalued, just below the 60.0% ValuEngine Valuation Watch threshold. We still show 15 of 16 sectors overvalued, with 13 overvalued by double-digit percentages including utilities by 14.0%. Today, I profile the stocks in the Dow Utility Average with the utility sector 14.0% overvalued.

OV/UN Valued: Only three stocks in the Dow Utility Average are undervalued, with AES ( AES) the most undervalued by 7.2%. The most overvalued stock is Williams Companies ( WMB) by 56.9%.

VE Rating: WMB has the only "3-Engine" or hold rating. 13 have "4-Engine" or buy ratings, and AES has a "5-Engine" or strong buy rating. Consolidated Edison ( ED), First Energy ( FE), Nisource ( NI), and Public Service Enterprise ( PEG) have been downgraded to buy from strong buy this morning.

Last 12-Month Return (%): Only three Dow Utility stocks declined over the last 12 months with Exelon ( EXC) the biggest loser down 12.4%. The biggest winner over the last 12 months is Nextera Energy ( NEE) with a gain of 26.9%.

Forecast 1-Year Return: Only WMB shows downside risk over the next 12 months with a projected slippage of just 0.8%. The biggest winners are projected to be NI and AES with projected gains of 12.0% and 13.6% respectively.

12 Month Trailing P/E Ratios: Sector P/E ratios range from 10.7 for AES to 39.1 for WMB.

200-Day Simple Moving Averages: Only FE is trading below its 200-day. This means that the other 14 stocks are at risk of reversion to the mean.

Here's how to use the Value Levels and Risky Levels for stocks in today's table:

Value Level: is the price at which to enter a GTC Limit Order to buy on weakness. The letters mean; W-Weekly, M-Monthly, Q-Quarterly, S-Semiannual and A- Annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: is the price at which to enter a GTC Limit Order to sell on strength.

If you want to buy-and-trade the energy sector without stock picking consider using the Utilities Select Sector SPDR ( XLU) ($39.01). My semiannual and monthly value levels are $36.48 and $35.88 with a weekly pivot at $39.00 and quarterly and annual risky levels at $40.27 and $40.52.

Chart Courtesy of Thomson / Reuters

Keep in mind that utilities stocks are considered investments for the annual dividend. The dividend yield for the XLU is 3.52%. A stock that had a twelve month gain of 14% and a 3.5% dividend yield can be sold to lock in the equivalent of four years of dividends.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.