The Utilities (NYSEARCA:XLU) sector gets a bad rap even when it's the best-performing S&P (NYSEARCA:SPY) group, as that usually occurs on down market days. But its poor performance has Wall Street eyeing attractive valuations.
XLU had another ho-hum move this past week, down 0.85%, compared with the broader market, up 2%.
Year to date it and in the last 52 weeks, it been the worst S&P sector, up just 4.8% and 8.3% respectively.
But Citi has upgraded Utilities to Market Perform from Underperform, saying valuation and EPS revision momentum are "quite attractive."
"Taking the Utilities sector up from Underweight after more than 2,200 basis points of underperformance over the past year (and 1,150bps ytd) does not look that heroic, especially with an attractive valuation," Citi Chief U.S. Equity Strategist Tobias Levkovich writes in a note. "This group is one of the few not demonstrating peak-like earnings revisions and our lead-indicator model is helpful too."
"Yet, the buy side has not liked the group for a good while based on our survey data going back a few years," he says. "Hence, we think of the group as under-owned, yet there are no clear catalysts for appreciation at the moment."
Citi's quant-based model still indicates weakness, keeping the sector from getting on Overweight nod.
"A rising bond yield could be supportive and our economic model also suggests some upside opportunity, but we doubt that investors will run to this group an economic acceleration since there are many cyclical stocks to buy instead," Levkovich adds.
The five best-performing stocks in the sector this year are FirstEnergy (NYSE:FE), CenterPoint Energy (NYSE:CNP), Evergy (NYSE:EVRG), Duke Energy (NYSE:DUK) and Alliant Energy (NASDAQ:LNT).
The biggest decliners are Edison international (NYSE:EIX), DTE Energy (NYSE:DTE), Eversource Energy (NYSE:ES), NextEra Energy (NYSE:NEE) and Dominion Energy (NYSE:D).
Citi just added Edison to its Recommended List, which has not had any utility names on it "for a couple of years."
Along with XLU, by far the biggest utilities ETF with nearly $12B assets under management, major utes ETFs include Vanguard Utilities (NYSEARCA:VPU), Fidelity MSCI Utilities Index (NYSEARCA:FUTY) and iShares U.S. Utilities (NYSEARCA:IDU). (You can screen for ETFs here.)