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Studies in Corona Vol-Utility (AES/XEL)

Posted on March 30, 2020

Today’s play is downright electric.

And the thinking is as follows.

Coronavirus.

Folks stuck at home.

No one working.

No stores open.

No factories operating.

No stress on the electric utilities.

No BILLINGS, either.

Electric utilities’ stock declines.

But Not Forever.

There will be a meaningful bounce when folks are ANTICIPATED to return to work.

That might be a few weeks or even months, but when it does happen, you’ll see it in the stock.

Again, we stress – when it’s ANTICIPATED that we return to work.

And that day has yet to arrive.

Eager lad, you are, Shibboleth.

But we had something else in mind.

Take a look now at said utility ETF.

This is the SPDR Utilities ETF (NYSE:XLU) for the last six months.

And it shows precisely what’s NOT supposed to happen when panic strikes.

Under normal circumstances, the utilities, which are usually accompanied by a respectable dividend yield, catch a safe haven bid (like bonds and preferred shares) as markets sell off.

As mentioned above, though, the issue here is earnings, and in that regard, utilities, whose cash flow is normally reliably predictable, got the whack along with everyone else.

With kind regards,

Hugh L. O’Haynew

 

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