Why Exelon

Yesterday, I purchased shares of Exelon, the electric utility. I believe the shares are reasonably priced at 12 times earnings given the stability of the utilities business. There is also a lot of upside to earnings if natural gas prices ever do pick up. They are especially reasonably priced compared to the broader market and offer a nice dividend that has room to grow. The reasons for the timing of my purchase are as follows:
  • We have seen a giant game of sector rotation in the market over the past few months. Utilities have been on the skids for over a month. If past is prologue we should see them come back into favor shortly. 
  • I foresee a tougher period ahead for the market. Utility shares tend to outperform in those circumstances.
  • Exelon disappointed last earnings season. I believe this has set the bar extremely low for their report tomorrow. I like low bars.

1 comment:

PJ said...

Agree ... There was a huge rotation into the Russell 2000 in December that continued in the first week of January, I expect that to be reversed and defensive stocks to come back into vogue.

The rise in first-time claims to 482,000 this morning is another straw in the wind that upcoming economic data is going to disappoint.