Utilities Stocks Are Powering Up: XLU on the Verge of a Breakout
In the exchange-traded funds (ETFs) world, the Utilities Select Sector SPDR Fund NYSE: XLU demonstrates a notable bullish setup. The XLU is now up almost 12% year-to-date, consolidating in a bullish wedge just under 3% away from its 52-week high and trading above all major moving averages.
Very Good News For Utilities: XLU
Utility stocks have underperformed the market recently due to rising interest rates. However, there are three major macro factors that are likely going to push utilities higher relative to the broader market moving forward. We discuss the ramifications for The Utilities Select Sector SPDR® Fund ETF, as well as some of our top picks of the moment in the utilities space.
XLU: Negative FCF May Lead To Dividend Cuts
The XLU portfolio has a substantial negative FCF estimated for the next two years of over US$14bn per year. High capex requirements for capacity expansion may lead to increased debt, reduced dividends, or capital raises for XLU holdings. Portfolio consensus price target upside potential of 9% seems reasonable, barring dividend cuts.
Should You Invest in the Utilities Select Sector SPDR ETF (XLU)?
Launched on 12/16/1998, the Utilities Select Sector SPDR ETF (XLU) is a passively managed exchange traded fund designed to provide a broad exposure to the Utilities - Broad segment of the equity market.
XLU: Utilities Are Attractive, Some More Than Others
Utilities have become attractive investments due to cheaper valuations and improved fundamental growth. The utilities sector has underperformed recently, but there is potential for higher returns in the future. Certain utilities stocks, such as Pinnacle West, Duke Energy, and Dominion Energy, are well-positioned to capture growth in electricity demand.
Not Impressed By Either Of The Stories That Have Been Powering XLU
There are two sets of stories driving Utilities Select Sector SPDR Fund ETF's rally. One involves the potential for interest rates to fall. The other involves the soaring demand for electric power due to AI, factory automation, electric vehicles, etc.
XLU: Join Billionaires Trading Short-Term Pain For Long-Term Gain
Utilities are facing severe short-term headwinds. However, the sector enjoys very attractive long-term tailwinds, prompting some of today's leading investors to pour trillions of dollars into the sector. We examine different ways to invest in the sector, including offering our take on Utilities Select Sector SPDR® Fund ETF as a vehicle for investing in utilities.
