Our Utilities Stand Tall

5/9/2011


Less is more with our Top 15 Utilities portfolio. At 15 stocks, the portfolio has far fewer holdings than any exchange-traded fund (ETF) focused on the sector. But what it lacks in size, our portfolio makes up in returns.

TALE OF THE TAPE: TOP 15 UTILITIES VS. ETFs
Our Top 15 Utilities portfolio is a cut above six popular exchange-traded funds. Our portfolio sports superior returns and better Quadrix scores, yet boasts a higher yield and lower price/earnings ratios.
Portfolio
First
Trust
Utilities
AlphaDex
(FXU)
iShares
Dow
Jones
U.S. Utilities
(IDU)
PowerShares
Dynamic
Utilities
(PUI)
Rydex
S&P
Equal
Weight
Utilities
(RYU)
Utilities
Select
Sector
SPDR
(XLU)
Vanguard
Utilities
ETF
(VPU)
Top 15
Utilities
Number of Stocks
52
72
22
41
33
86
15
Weighted Avg.
Mkt. Cap. ($ Bil.)
15.5
14.4
1.3
18.6
16.7
13.8
10.0
Median Mkt.
Cap. ($ Bil.)
6.0
4.2
1.0
11.4
10.3
3.5
4.6
YTD Return,
To May 3 (%)
9.1
7.6
9.7
7.1
6.6
7.7
11.6
Yield (%)
2.5
3.7
3.1
3.4
4.0
3.8
4.1
Payout Ratio (%)
51.3
57.0
52.4
58.9
57.7
56.9
52.1
Trailing
P/E Ratio
14.8
14.9
17.2
15.1
13.4
14.9
13.2
Est. Curr.-Yr.
P/E Ratio
14.9
14.1
16.2
15.4
13.6
14.1
13.3
Quadrix Scores
Overall
57
55
48
51
55
54
62
Momentum
39
40
40
38
39
39
43
Value
76
72
62
71
76
72
77
Quality
48
48
49
46
48
48
53
Financial
Strength
51
51
46
46
49
50
58
Earnings Estimates
43
46
45
44
45
45
44
Performance
46
44
44
45
40
43
46

The Top 15 portfolio leverages our basic investment strategy — limiting picks to stocks with solid Quadrix® scores and generally favoring those with good finances, reasonable valuations, and sound growth prospects. Compared to the six popular utility ETFs listed above, the Top 15 portfolio stands tall on several counts:

Better Quadrix scores. In general, few utility stocks earn truly high Overall scores in Quadrix. Still, at 62, the average Overall score for the Top 15 Utilities portfolio is above the weighted average for each of the six ETFs. In fact, our utility portfolio boasts superior scores in five of the six category scores. The Top 15’s average Value score is an impressive 77.

Higher income. Our 15-stock portfolio yields 4.0%, topping all six ETFs, which collectively average 3.4%. Three of our picks yield at least 5% — Duke Energy ($19; DUK), Exelon ($42; EXC), and PPL ($27; PPL).

Cheaper valuation. Based on trailing earnings and current-year estimated earnings, the Top 15 portfolio averages a price/earnings ratio lower than all six ETFs. Four of our 15 stocks have trailing P/Es of 10 or lower, with PPL trading at less than nine times earnings.

Superior performance. So far this year, the Top 15 portfolio has gained 11.8% versus 9.7% for PowerShares Dynamic Utilities ($17; PUI), the best-performing utility ETF. The average fund has risen 8.0%. Since its inception in 2007, our portfolio has returned 29.1%, versus 11.6% for the S&P 1500 Utilities Sector Index.


TOP 15 UTILITIES OUTPERFORM

Total Returns
Year
Top 15
(%)
Sector
Index
(%)
2007
11.9
16.6
2008
(20.5)
(26.7)
2009
20.3
12.8
2010
7.9
7.1
2011 *
11.8
8.1
Since 2007 *
29.1
11.6

The Top 15 Utilities portfolio has returned 11.8% so far in 2011, versus 8.1% for its benchmark, the S&P 1500 Utilities Index. Since its inception at the beginning of 2007, the portfolio has posted a 29.1% total return — well above the index’s 11.6% gain.

* Through May 3.


Investors seeking utility exposure should consider purchasing equal-dollar positions in the 15 stocks listed below. One recent addition, Duke Energy, is profiled below.

n In the wake of a 2007 divestiture of its large natural-gas transmission and storage business, Duke Energy ($19; DUK) depends heavily on the performance of its traditional utilities. In each of the last four quarters, sales rose at least 8% and per-share operating profits jumped at least 26%, suggesting those utilities are doing fine.

Duke is in the process of buying Progress Energy ($48; PGN) for about $14 billion in stock. The deal should create the nation’s largest utility, with more than $38 billion in stock-market value, 7.1 million electric customers, and about 57 gigawatts of generating capacity. In the March quarter, Duke earned $0.39 per share excluding special items and some power-pricing adjustments, up 8% and $0.04 above the consensus. Duke projects 2011 per-share earnings at or above consensus. Duke, yielding 5.2%, earns an A (above average) rating and is a component of the Top 15 Utilities portfolio. For big news on Exelon ($42; EXC), another Top 15 component, see Portfolio Review.

TOP 15 UTILITIES PORTFOLIO
Quadrix Scores
Sector-Specific
------ Scores ------
Company (Price; Ticker)
Div.
($)
Yield
(%)
Div.
Payout
Ratio
(%)
Trailing
P/E Ratio
Value
Overall
12-
Factor
Sector
Reranked
Overall
AGL Resources
($41; AGL)
1.80
4.4
61
14
71
49
56
65
Avista ($24; AVA)
1.10
4.5
67
15
78
70
68
89
Cleco ($35; CNL)
1.00
2.8
44
16
68
76
83
99
DTE Energy
($51; DTE)
2.24
4.4
67
15
78
49
53
69
Duke Energy
($19; DUK)
0.98
5.2
68
13
81
67
98
93
Energen
($63; EGN)
0.54
0.9
13
15
51
74
78
94
Entergy
($70; ETR)
3.32
4.8
46
10
93
68
95
84
Exelon ($42; EXC)
2.10
5.0
50
10
88
58
90
73
NextEra Energy
($57; NEE)
2.20
3.8
51
13
78
56
74
56
PPL ($27; PPL)
1.40
5.1
45
9
89
90
100
100
Public Svc. Ent.
($32; PEG)
1.37
4.3
43
10
84
56
91
71
Southern Union
($29; SUG)
0.60
2.1
34
16
61
52
66
60
TECO Energy
($19; TE)
0.82
4.3
69
16
76
43
58
46
UniSource Energy
($38; UNS)
1.68
4.5
60
13
87
58
80
66
Westar Energy
($27; WR)
1.28
4.7
71
15
73
60
89
83
Average
4.0
53
13
77
62
78
76

 


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