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In the latest trading session, Constellation Energy Corporation (CEG) closed at $200.33, marking a -0.45% move from the previous day. This move lagged the S&P 500's daily loss of 0.29%. Elsewhere, the Dow saw a downswing of 0.25%, while the tech-heavy Nasdaq depreciated by 0.31%.
Shares of the company have appreciated by 5.51% over the course of the past month, outperforming the Oils-Energy sector's loss of 2.45% and the S&P 500's gain of 1.57%.
The investment community will be closely monitoring the performance of Constellation Energy Corporation in its forthcoming earnings report. The company's upcoming EPS is projected at $2.53, signifying a 11.95% increase compared to the same quarter of the previous year.
CEG's full-year Zacks Consensus Estimates are calling for earnings of $7.99 per share and revenue of $24.41 billion. These results would represent year-over-year changes of +59.48% and -2.03%, respectively.
Investors should also note any recent changes to analyst estimates for Constellation Energy Corporation. These revisions help to show the ever-changing nature of near-term business trends. Consequently, upward revisions in estimates express analysts' positivity towards the company's business operations and its ability to generate profits.
Based on our research, we believe these estimate revisions are directly related to near-team stock moves. To take advantage of this, we've established the Zacks Rank, an exclusive model that considers these estimated changes and delivers an operational rating system.
The Zacks Rank system, which varies between #1 (Strong Buy) and #5 (Strong Sell), carries an impressive track record of exceeding expectations, confirmed by external audits, with stocks at #1 delivering an average annual return of +25% since 1988. Over the last 30 days, the Zacks Consensus EPS estimate has witnessed a 1.96% increase. Constellation Energy Corporation is holding a Zacks Rank of #3 (Hold) right now.
Looking at valuation, Constellation Energy Corporation is presently trading at a Forward P/E ratio of 25.18. For comparison, its industry has an average Forward P/E of 19.08, which means Constellation Energy Corporation is trading at a premium to the group.
Investors should also note that CEG has a PEG ratio of 1.5 right now. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. The average PEG ratio for the Alternative Energy - Other industry stood at 2.32 at the close of the market yesterday.
The Alternative Energy - Other industry is part of the Oils-Energy sector. This group has a Zacks Industry Rank of 200, putting it in the bottom 21% of all 250+ industries.
The Zacks Industry Rank evaluates the power of our distinct industry groups by determining the average Zacks Rank of the individual stocks forming the groups. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.
Be sure to use Zacks.com to monitor all these stock-influencing metrics, and more, throughout the forthcoming trading sessions.
Zacks Investment Research
The Federal Reserve's interest rate policies have been a major influence on market dynamics, with the S&P 500 Index on pins and needles ahead of today's decision. The benchmark index is up 26.5% over the past year and 18% on a year to date basis, and is lingering near record highs - but at the same time, volatility expectations are also picking up.
The Cboe Volatility Index , which reflects investors' expectations for short-term price swings in the SPX, has cooled from its “panic highs” of early August, but still sits about 48% higher than its mid-June levels, as of this writing. This reflects heightened uncertainty on Wall Street, as investors eye softening economic data against still-elevated inflation - leaving the Fed to thread the needle on a soft landing for the U.S. economy.
In times like these, defensive ETFs can be a go-to for investors seeking a safe harbor. These funds are crafted to weather economic storms, offering steady returns even when the broader market is in flux. As the Federal Reserve prepares for what's expected to be a series of rate cuts, the allure of these defensive plays grows stronger amid the nearly palpable uncertainty on Wall Street.
This brings us to a noteworthy development: Bank of America's recent decision to upgrade the utilities sector to “Overweight.” With strong fundamentals and appealing dividend yields, utilities stocks have caught the eye of investors looking for reliable investments - and presents a compelling opportunity to invest in utilities for their resilience, as well as their potential growth in the age of artificial intelligence (AI).
Let's take a closer look at a top sector-focused ETF to uncover its composition, performance, and the insights driving Bank of America's bullish stance.
Overview of Utilities Select Sector SPDR Fund ETF
As one of the old-school SPDRs, the Utilities Select Sector SPDR Fund is no newcomer to the ETF space. Launched in 1998, XLU has grown to manage $18.5 billion in assets, making it a heavyweight in the exchange-traded fund (ETF) market.
Managed by State Street Global Advisors, XLU is designed to track the performance of the Utilities Select Sector Index, focusing on companies within the electric utilities, water utilities, and multi-utilities sectors. The fund's strategy is straightforward; to replicate the performance of its benchmark index. Given the stable demand for utilities, this approach positions XLU as a defensive play, which is particularly appealing during times of market uncertainty.
XLU's portfolio is spread across 31 holdings. The top 10 stocks account for about 59% of the total portfolio, highlighting its focus on major utility players. NextEra Energy Inc. leads the pack with a significant 14.59% weighting, followed by Southern Company and Duke Energy at 8.16% and 7.50%, respectively. Other top holdings include Constellation Energy (5.28%), American Electric Power (4.57%), and Sempra (4.42%). This concentration underscores XLU's emphasis on stability and reliable income.
In terms of performance, XLU has outpaced the broader market in 2024, with a year-to-date gain of nearly 25%.
Investors are drawn to XLU not only for its stability but also for its attractive dividend yield of 2.77%, based on the quarterly dividend of $0.56. This yield is nearly double that of the broader S&P 500, making it a compelling choice for income-focused investors.
Furthermore, XLU maintains a low expense ratio of 0.10%, which is well below the category average, enhancing its appeal as a cost-effective investment option.
The fund also enjoys strong liquidity, with an average daily trading volume of about 8.5 million shares. This high volume ensures that investors can enter and exit positions quickly with minimal slippage, a crucial factor in volatile markets.
Impact of Fed Rate Cuts
When the Federal Reserve decides to cut interest rates, it sets off a chain reaction that affects various facets of the economy. Lower rates make borrowing money cheaper, encouraging both consumers and businesses to spend and invest more. This increased activity can stimulate economic growth, providing a much-needed boost, especially when the economy is slowing down.
For the utilities sector, which is tracked by the XLU ETF, rate cuts can be particularly advantageous. Utilities are capital-intensive, relying heavily on borrowing to fund infrastructure projects and maintain operations. With lower interest rates, these companies face reduced borrowing costs, enhancing their profitability and making them more appealing to investors seeking steady returns. This is particularly crucial now, as energy demands from AI are ramping higher.
Historically, utilities and other high-dividend sectors perform well when interest rates decline. Lower rates make high-dividend stocks more attractive than fixed-income investments like bonds, whose yields drop in tandem with rate cuts. As a result, investors often flock to utility stocks for their reliable dividends, further driving up stock prices in this sector.
More broadly, data shows that on average, U.S. stocks have delivered an 11% real return in the 12 months following the start of a rate-cutting cycle, outpacing bonds and cash. This trend underscores the potential for growth in sectors like utilities, which are poised to benefit from improved market conditions and their inherently defensive characteristics.
Conclusion
In conclusion, the Utilities Select Sector SPDR Fund stands out as a smart choice for investors seeking both stability and income, especially as the market anticipates potential Federal Reserve rate cuts. With its strong performance, attractive dividend yield, rising electricity demand, and low expense ratio, XLU offers a compelling defensive strategy in uncertain times. Bank of America's upgrade of the utilities sector underscores this potential, making now an opportune moment to consider utilities as a cornerstone of your investment portfolio.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
Wall Street logged strong gains last week, with the Nasdaq Composite Index outperforming. The tech-heavy index climbed 5.9%, marking the best week of this year. Invesco QQQ QQQ, which serves as a proxy to the Nasdaq Index, gained 5.9% last week.
We have highlighted the five stocks of QQQ that led the way higher in the portfolio last week. These are Warner Bros. Discovery WBD, ARM Holdings PLC Sponsored ADR ARM, Micron Technology MU, On Semiconductor ON and Constellation Energy Corporation CEG.
The gains were driven by the tech stocks that resumed their momentum on looming rate cuts this week. The Fed is expected to deliver its first interest rate cut since 2020 in its meeting, scheduled to start tomorrow. Markets are pricing in 50% chances of a 50-bps rate cut and 50% odds of a 25-bps rate cut, according to CME Group's FedWatch tool.
When the Fed starts cutting rates, technology stocks will receive a boost. As the tech sector relies on borrowing for superior growth, borrowing more money for further initiatives is cheaper when interest rates are low (read: Sector ETFs Set to Explode as Fed Rate Cut Bets Gain Steam).
The AI boom will continue to fuel the rally in the sector, with companies investing considerable sums in this technology. The expansion of AI applications holds the promise of ushering in fresh growth opportunities in the tech sector and beyond. Per a new report by Grand View Research, the global artificial intelligence market is expected to witness a CAGR (2024-2030) of 36.6% to reach $811.75 billion by 2030.
The three stocks — NVIDIA, Apple (AAPL) and Microsoft (MSFT) — are in a race to become the world’s most valuable company and hit a market capitalization of $4 trillion on surging enthusiasm over AI capabilities.
Let us take a closer look at the fundamentals of QQQ.
QQQ in Focus
Invesco QQQ offers exposure to the 101 largest domestic and international non-financial companies listed on the Nasdaq. Information technology accounts for 61.5% of the assets, while consumer discretionary makes up 17.5% share.
Invesco QQQ is one of the largest and most popular ETFs in the large-cap space, with an AUM of $278.1 billion and an average daily volume of around 36 million shares. Invesco QQQ charges investors 20 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: 5 Technology ETFs at the Forefront of the August Rebound).
Below, we have highlighted the abovementioned five stocks in the ETF with their respective positions in the fund’s basket.
Top-Performing Stocks in QQQ
Warner Bros. Discovery is a premier global media and entertainment company that combines WarnerMedia Business’s premium entertainment, sports and news assets with Discovery’s leading non-fiction and international entertainment and sports businesses. The stock rose 10.8% last week. WBD makes up for 0.14% of the assets in QQQ and currently carries a Zacks Rank #3 (Hold). It has a Growth Score of B.
ARM Holdings provides processor designs and software platforms. The stock makes up for 0.11% of the assets in the QQQ portfolio. Arm Holdings gained 5.9% last week and currently has a Zacks Rank #3.
Micron Technology has established itself as one of the leading worldwide providers of semiconductor memory solutions. The stock makes up for 0.68% of the assets in the QQQ portfolio. Micron Technology has gained 4.6% and carries a Zacks Rank #3 at present. It has a Growth Score of B.
On Semiconductor is an original equipment manufacturer of a broad range of discrete and embedded semiconductor components. The stock rose 3.4% last week and makes up for 0.2% of QQQ. On Semiconductor currently has a Zacks Rank #3.
Constellation Energy generates and markets electricity. It sells natural gas, renewable energy and other energy-related products and services. The stock grew 3.2% last week and makes up 0.41% of the assets in the QQQ portfolio. Constellation Energy presently has a Zacks Rank #3 and a Value Score of B.
Zacks Investment Research
The Nasdaq 100 Index just delivered its best weekly performance since October 2023, ripping 5.9% higher and closing five straight sessions in the green.
This rally comes on the heels of last week's shocking 5.8% plunge—the index’s worst week since nearly two years.
Tech Stocks Have Rallied 5.9% This Week, Erasing Last Week’s Losses
What sparked the surge? Investors were stoked by a solid batch of economic data, showing tame inflation, steady jobless claims, and an upbeat consumer sentiment report.
This data has reinforced market expectations that the Federal Reserve will announce its first interest rate cut in more than four years during its upcoming meeting next week.
There is currently an even split in market odds between a 25-basis-point cut and a more aggressive 50-basis-point cut, with the latter gaining traction in recent hours, as per CME FedWatch tool.
A recent Goldman Sachs analysis showed how the stock market historically performed after the initial rate cut.
If the U.S. economy avoids a recession following the cut, stock market performance tends to be positive over the next three to six months. However, if a recession occurs, stocks typically underperform after a rate cut.
7 Top-Performing Tech Stocks This Week
Several tech stocks delivered impressive gains over the past five days, contributing to the overall Nasdaq 100 rally. Below are the top-performing stocks:
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