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Invesco S&P 500 Equal Weight Utilities ETFII

Invesco S&P 500 Equal Weight Utilities ETF

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Is it time for a utilities play?Defensives have been outperforming the S&P 500 since March. If you believe the outperformance will continue, then now might be the time to buy, as they are approaching the support line. I'm particularly watching utilities. In addition to being a classic defensive sector, utilities also have "growth" potential. They had a period of strong outperformance a couple years ago during the renewables boom. Presently they look cheap compared to other sectors. The equal-weight utilities to equal-weight S&P 500 ratio has made a large bullish divergence and is currently testing a support level. Might it make a double bottom here? I particularly like NRG Energy, a Texas utility with a diversified basket of power generation capabilities, including fossil fuels and renewables. NRG is looking like it will make a breakout attempt soon: It has a forward P/E of 6, a forward P/S under .5, and a P/FCF under 11. Dividend yield is over 4%. Open interest is bullish, and upside to the average analyst price target is 36%. This bad boy could seriously rip if utilities return to strength. Utilities move somewhat in sympathy with oil prices, and oil prices are breaking out. That could prove to be a catalyst for this sector.
ALong
by ChristopherCarrollSmith
14
Utilities could substantially outperform this yearUtilities traditionally are a recession safe haven, although in March they fell along with the broader market. There is reason, however, to think they will outperform going forward. According to an analyst poll conducted by FactSet, analysts expect utilities to be the sector least affected by the pandemic, with 2020 earnings down only 1.6% from pre-pandemic forecasts. The next strongest sector, information technology, is expected to take a 6.5% hit. Of the S&P 500 companies that have confirmed their previous 2020 guidance, 53% are in the utilities sector. Here's the link to the FactSet poll: www.factset.com Although earnings forecasts for the sector are down only 1.6%, utilities stock prices are down about 16% from their pre-pandemic peak. That suggests that utilities are now trading at a significant discount. Additionally, RYU has a nearly 3% dividend yield and has been a growth sector due to the widespread adoption of renewable energy technologies by both corporations and governments. In 2019, the utilities sector roughly doubled its earnings over the previous year. In terms of technicals, utilities recently made a bullish MACD cross on the weekly chart. There's a little bearish divergence on the histogram, and the daily MACD is below the signal line, which makes some short-term price weakness a real possibility. For the longer term, however, the technical setup looks good. RYU is sitting atop a block of support on the volume profile, whereas to the upside there's much less volume profile resistance. Note that RYU is not optionable. If you're like me and you'd like to buy some long-term (2022) option calls, you could look at the XLU S&P 500 utilities fund. I prefer equal-weight funds because they tend to outperform long-term, but in addition to being optionable, XLU has a better dividend yield and a better expense ratio than RYU.
ALong
by ChristopherCarrollSmith