foxex: Going Green

Thursday, February 13, 2020

Going Green

Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Thursday, February 13, 2020

1. Indexes remain range-bound while Utility sector surges

2. A look inside the Utility sector

3. When investing in clean energy pays off

Market Moves

While the Nasdaq 100 (NDX), S&P 500 (SPX), and the Dow Jones Industrial Average (DJX) all struggled to close the day nearly unchanged, one sector surged higher. Utility stocks closed the session up by more than one percent. This continues an odd shuffle between stocks in that sector and technology stocks. These two seem to be vying for investor dollars in a bipolar struggle between risk-on and risk-off investing. Today the electric companies won.

The chart below displays an important comparison, however, demonstrating that it isn't just about the safety-oriented stocks, those mini-monopolies that pay fat dividends and display such low volatility. This time around investors are eager to fund clean energy opportunities as shown in a comparison between Invesco's Nasdaq 100 Index ETF (QQQ) and iShare Global Clean Energy ETF (ICLN).

A Look Inside the Utility Sector

With the Utility sector on the rise, it may be worth taking a moment to look inside the sector index and see which companies are driving it higher. Six of the top 10 holdings within State Street's Utility Sector index ETF (XLU) include Xcel Energy (XEL), Duke Power (DUK), Southern Energy (SO), Excelon (EXC), Consolidated Edison (ED), and Dominion Energy (D). Though DUK shares surged on great earnings news, the standout in the group is Xcel Energy. This company has recently worked hard to move itself squarely in the focus of those looking to invest in environmental, social and governance (ESG) factors.

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When Investing in Clean Energy Pays Off

Xcel Energy (XEL) is an electric company that services several Western and Midwestern states. What is notable about this company is that it currently has 30 percent of its power delivered from Solar and Wind sources, but it's has a plan to increase that amount above 75 percent in just two years. But its not only the marketing message that resonates with investors, it's results.

The chart below displays a weekly tracking of the company over the past two years (click on the graphic to see a larger version). One important dynamic took place in the past several months as the company's operating expenses dropped significantly over the summer. And even though the expenses have been on the rise since then, so have the company's diluted earnings per share. This anecdotal evidence suggests that the company is choosing to spend on things that are hitting the bottom line.

The Bottom Line

Stocks struggled to hold ground, but Utility sector stocks jumped higher as investors went looking for a mix of safety and growth opportunity at the same time. Investors appear to be finding what they want in companies that are on the forefront of using clean energy technologies.