28 October 2020

Utilities Stocks Power Higher as Investors Flee to Safety

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Run for safety. That was the sentiment on Wall Street Tuesday after President Donald Trump halted negotiations on a second stimulus package until after the November election.

The decision came as a shock to financial markets given the president tweeted just days earlier that the country must work together to deliver further economic relief. Although Republicans and Democrats remain at loggerheads about the size and details of additional stimulus measures, Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi were reportedly making progress in discussions and had been scheduled to continue talks Tuesday.

While stocks reversed course to close lower following the announcement, utilities names bucked the trend to finish higher. Investors view the sector as a safe haven during times of uncertainty due to the group's predictable earnings streams and high-paying dividend yields. Below, we take a closer look at two leading utilities stocks and analyze their charts to identify possible trading opportunities.

Edison International (EIX)

Californian utility giant Edison International supplies electricity to around 5 million customers in a 50,000-square-mile area of Southern California, excluding Los Angeles. Investors will be looking for the power provider to improve on its second quarter earnings, where it reported a profit of $1 per share – representing a bottom-line decline of 36.7% from a year earlier. Analysts expect the company to disclose third quarter adjusted earnings of $1.43 per share when it releases financial results later this month. As of Oct. 7, 2020, Edison International stock has a market capitalization of $20.37 billion, yields 4.85%, and is trading 26% lower year to date.

Buyers pushed the share price above the top trendline of a falling wedge pattern and 50-day SMA Tuesday in a move that may fuel further upside momentum in subsequent trading sessions. Those who enter here should anticipate a move up to the $62 level, where price may run into overhead resistance from a multi-year horizontal line. Protect capital with a stop-loss order placed somewhere below yesterday's breakout point at $52.

CMS Energy Corporation (CMS)

CMS Energy operates as an energy company though four segments: electric utility, gas utility, enterprises, and enerbank. The $18 billion utility firm posted second quarter adjusted earnings of 49 cents per share, with the figure surpassing analysts' expectations by 3 cents per share and improving 48.5% from the year-ago quarter. CMS also reaffirmed its 2020 full-year earnings per share (EPS) guidance range of $2.64 to $2.68. Trading at $62.89 and offering a 2.59% dividend yield, the stock has gained 2% on the year, outperforming the sector average over the same period by around 3% as of Oct. 7, 2020.

CMS shares broke out above an ascending triangle and the closely aligned 50- and 200-day SMAs Tuesday. Moreover, the price has ample room to move higher before consolidating, given that the relative strength index (RSI) sits below overbought conditions. Traders who buy the breakout should look for a retest of the all-time high at $69.12 but exit if the stock fails to hold above the 200-day SMA around $61.

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