Investors Seek Refuge in Utilities as Trade War Escalates

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Investors Seek Refuge in Utilities as Trade War Escalates

A slew of fresh tariffs imposed by both nations have crushed expectations of a settlement to the year-long trade spat between the United States and China. This comes just as investors were beginning to get somewhat comfortable about it.

On Friday, Washington took the initiative and increased duties on $200 billion worth of Chinese imports from 10% to 25%. Beijing replied on Monday by announcing plans to raise taxes on $60 billion worth of American products. In response, President Trump started the process to slap tariffs on an additional $300 billion worth of Chinese imports, thereby making all Chinese products brought into the United States subject to duties.

The world’s two economic heavyweights’ return to a full-fledged tit-for-tat tariff war has sent equities into a free fall over the last week, with industries with the highest exposure to China, such industrials and technology, taking the most impact. On the other side, the utilities sector has had substantial purchasing activity as investors seek safety in companies that make the majority of their income domestically.

“Tariffs won’t harm utility sales or profitability in any noticeable way. Additionally, utilities are likely to charge consumers for such costs even if tariffs result in higher steel prices or costs for other goods “According to Bloomberg, John Bartlett, the Reaves Utility Income Fund’s co-portfolio manager.

These trading ideas, which focus on three reliable utility businesses, are appropriate for investors looking for a safe-haven equity play in the midst of the increasing trade war.

American Electric Power Company, Inc. (AEP)

The American Electric Power Company, Inc. (AEP), a company established in 1906, provides power to retail and wholesale consumers in the US. It uses nuclear power, renewable energy, natural gas, coal, and natural gas to produce electricity. The Columbus, Ohio-based business handily above analysts’ $1.10 forecasts by reporting first quarter earnings per share (EPS) of $1.19. In comparison to the same quarter previous year, its bottom line increased by 24%. American Electric reiterated its outlook for operating profits in 2019 of $4.00 to $4.20 per share and said that it anticipates investments in regulated industries to support ongoing earnings growth. The company is up 17.31% year to date (YTD) as of May 14, 2019 and is now trading at $86.34, with a $42.60 billion market value and a 3.13% dividend yield.

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The share price of American Electric surged sharply from the 50-day simple moving average (SMA) in Friday’s trading session and kept pushing higher Monday to establish a new all-time high after spending the previous months in a constrained three-point trading range. The stock has plenty of potential to rise before stabilizing as long as the relative strength index (RSI) is below overbought zone. In order to maximize gains, traders who play the momentum breakout may want to think about utilizing the 15-day SMA as a trailing stop. To guard against a swift price reversal, place a first stop-loss order below Friday’s low at $82.67.

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American Water Works Company, Inc. (AWK)

With a market value of $19.98 billion, American Water Works Company, Inc. (AWK) offers water and wastewater services to around 3.4 million residential, commercial, and industrial clients in the United States and Canada. Over 90% of the utilities giant’s income comes from regulated markets. The firm reported disappointing year-over-year (YoY) profits growth of 3.4%, while exceeding first quarter sales predictions by coming in at $813 million vs expectations of $790.6 million. Despite the conflicting results, the business maintained its forecast for full-year 2019 adjusted EPS of $3.54 to $3.64, which translates to a consistent 8.8% growth rate. As of May 14, 2019, American Water has a dividend yield of 1.68% and a year-to-date gain of 20.33%.

The majority of American Water’s YTD increase was gained in the first quarter. Since then, the price has been moving sideways as it gets ready to make another upward push. Friday saw the maiden upward breakout, and yesterday’s 2.24% increase on above-average volume strengthened the bullish trend. The measured move approach might be used by traders who take a long position to define a profit objective. For instance, multiply the breakout point ($22) by the dollar difference between the low from December 26, 2018, and the high from March 22, to obtain the profit objective ($127.50). If momentum suddenly pauses, place a stop beneath the 50-day SMA to end deals.

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The Southern Company (SO)

The Southern Company (SO), which serves around 9 million consumers, produces, transmits, and distributes energy primarily in the Southeast of the United States. Gas Distribution Operations, Gas Pipeline Investments, Wholesale Gas Services, and Gas Marketing Services make up its four business sectors. Due to reduced retail sector sales and the sale of its Gulf Power business, the utilities major reported first quarter EPS of 70 cents, which was in line with expectations. However, this result was 20% lower than the prior quarter’s profit. With a market value of $56.28 billion, The Southern Company stock offers investors a tempting 4.66% dividend return. As of May 14, 2019, the company’s shares have increased 24.54% YTD in terms of performance.

Since bottoming out in late December, the share price has trended rapidly upward into bull market territory. Even if recent retracements have fallen short of the 50-day SMA, the RSI is still below the 70.0 level, which prevents the price from reaching overbought territory before rising momentum stops. Consider employing an exit strategy that tracks a stop under the previous day’s low or under a quick period moving average if you want to purchase the stock’s recent strength. Protect your trading money by setting a first stop order below the $52.18 low from May 9.

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