Investors Start to Cool on Utilities
August 19 2019 - 5:36PM
Dow Jones News
By Jessica Menton
Utility stocks haven't been climbing in August as much as some
analysts and investors might expect given the sharp drop in bond
yields recently.
NextEra Energy Inc., American Water Works Co., Southern Co. and
American Electric Power Co. have outpaced the S&P 500 this
month, climbing at least 3.1% in August. That gain is seen as
relatively modest given that investors have flooded into government
bonds in recent weeks, pushing yield on the 10-year Treasury note
to multiyear lows.
Utilities are typically viewed as bond proxies because they pay
relatively high dividends and tend to have steady earnings during
times of economic uncertainty. Bond yields fall as prices rise.
One reason, analysts say, is because S&P 500 sectors
perceived as safer -- such as utilities, consumer staples and real
estate -- have been outperforming the broader market over the past
three months, a reversal from earlier this year when cyclical
sectors tied to the health of the U.S. economy sent major stock
indexes to records. Analysts said utility stocks didn't have as
much room to rise after that rally.
Another reason investors are lukewarm on utilities comes from
lingering concerns about what PG&E's safety issues could mean
for the broader industry. PG&E shares slid 25% Monday after a
judge ruled that a jury could decide whether the company's
equipment caused the second-worst wildfire in California history.
Its was the stock's worst day since Jan. 14. Shares of some of the
largest utility companies were little changed.
"PG&E has made a lot of people concerned about whether or
not these companies have been making the capital reinvestment to
keep their businesses safe," said Tom Plumb, portfolio manager at
Plumb funds. "Normally you would have thought that lower interest
rates would have fueled money going into utility stocks, but it
hasn't."
Shares of PG&E have lost 76% of their value over the past 12
months as the company faces an estimated $30 billion in damage
claims from wildfires linked to its equipment.
(END) Dow Jones Newswires
August 19, 2019 17:21 ET (21:21 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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