One Sector Contrarian Bulls May Want to Target

From a contrarian standpoint, the utilities and gas sector is a prime candidate for bullish attention

by Josh Selway

Published on Feb 26, 2016 at 3:12 PM
Updated on Jun 24, 2020 at 10:16 AM

There's a new sector for contrarian bulls to watch: utilities and gas. Since Jan. 5, the household goods and food-and-beverage sectors have topped our internal sector scorecard, which seeks to identify contrarian opportunities by measuring price action and sentiment across several sectors. But that reign just ended. Against this backdrop, let's take a look at the Utilities SPDR ETF (XLU), as well as a few stocks to put on your radar.

First, more about our internal scorecard, compiled by Schaeffer's Senior Quantitative Analyst Rocky White. In a nutshell, White sorts sectors by their Expectational Analysis® set-up. Those with a bullish backdrop -- rising price action and negative sentiment -- will emerge on the top of the list, and vice versa for overloved stocks that are sinking.

Of the 19 stocks under our "Utility and Gas" umbrella, a healthy 42% are above their 80-day moving averages. However, "buy" ratings among analysts have dropped in the past year, and the average short interest change in the past 52 weeks is a huge 43.1%.

As for XLU -- the exchange-trade fund (ETF) that tracks this sector -- it's having a rough day, as stocks turn lower across Wall Street. Still, despite it's 2.7% drop to trade at $46.20 today, the ETF has added nearly 7% in 2016. 

Among individual equities to watch in this sector is CenterPoint Energy, Inc. (NYSE:CNP). The shares recently took a bounce off their rising 40-day moving average, which has historically acted as a short-term springboard. Specifically, the stock has moved higher two of the last three times it's met this trendline over the past three years, sporting an average five-day return of 1.5%. 

The stock could also benefit if put buyers hit the exits. CNP's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) comes in at 2.45 -- higher than three-fourths of readings from the past year. However, the shares were last seen 3% lower at $18.57, as traders pan the company's fourth-quarter results

FirstEnergy Corp. (NYSE:FE) could also be a stock to watch in this sector, as it recently bounced from its historically bullish 40-day moving average, as well. The stock has ridden this trendline higher since December, and has posted a five-day win over half the time it's come into contact with it in the past. 

Despite today's 3.6% loss, FE has added over 3% in 2016 to trade at $32.73, and a round of bullish analyst notes could spark even more upside. There are currently seven brokerage firms on the fence with a tepid "hold" rating, meaning extended gains from the shares could push these analysts to the bulls' side. 

A Schaeffer's 39th Anniversary Exclusive!

8 Top Stock Picks for 2020

Access your FREE insider report before it's too late!


  
 
 

Partnercenter