It May Be Time To Buy Into The Utilities Select Sector ETF (XLU)

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December 16, 2009 1:19pm ETF BASIC NEWS NYSE:XLU

utility-stocks“Utility stocks have underperformed the broad market this year. The Utilities Select Sector SPDR (XLU), a basket of more than 30 electric and gas producers


, traders and distributors, is up about 10%. The SPDR S&P 500 ETF (SPY), which tracks large American companies in all industries, has gained 24%. But there are at least three reasons to believe utilities are now a better deal than a broad-market mutual fund,” Jack Hough Reports From Smart Money.

“First, they’re comparatively cheap. Utility shares within the S&P 500 index trade at less than 12 times 2009 earnings vs. 20 times earnings for the overall index. Second, they pay better. The aforementioned utility fund carries a 4% dividend yield, which is about double that of the broad-market S&P 500. Third, unlike many stocks, utilities don’t seem set up for earnings disappointment next year. Analysts forecast (and investors expect) 35% earnings growth for the broad market next year. For utilities, the projection is just 10%. And whatever the economic sensitivity of utility earnings — some power companies sell less electricity to industrial customers during recessions, and some face pricing pressure when the cost of a fuel source used by rivals falls — profits of companies that sell less-needed goods than heat and light are surely at greater risk,” Hough Reports.

“Besides, investors shouldn’t read this year’s unimpressive stock gains for utilities as underperformance. When the stock market tanked starting in October 2007, utilities fell by less than the broader market, and so they’ve had less far to climb back. Since the market’s October 2007 high, utilities have outperformed even without their generous dividends,” Hough Reports.

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Here is a closer look at the Utilities Select Sector SPDR ETF (XLU):

The investment (XLU) seeks to replicate the performance, net of expenses, of the Utilities Select Sector Index. The fund invests at least 95% of assets in common stocks that comprise the index. The index includes companies from the electric utilities, multi-utilities, independent power producers, energy traders and gas utility industries. The fund is nondiversified.

TOP 10 HOLDINGS (XLU) ( 55.74% OF TOTAL ASSETS)  
 
Company Symbol % Assets
AMER ELECTRIC POW CO (AEP) 4.29
DOMINION RES NEW (D) 6.01
DUKE ENERGY CP HL CO (DUK) 5.6
ENTERGY CP (ETR) 4.45
EXELON CORPORATION (EXC) 9.17
FIRSTENERGY CP (FE) 3.91
F P L GROUP INC (FPL) 5.98
PG&E CP (PCG) 4.51
PUB ENTRPR GP (PEG) 4.47
SOUTHERN CO (SO) 7.35

Chart for Utilities Select Sector SPDR (XLU)

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