In times of market weakness, it's fairly typical to see defensive names, such as utilities, rise to market leadership.
That's not an especially exciting or encouraging development for bulls or growth investors who gravitate toward companies that show market-beating earnings and price gains.
However, many market technicians have noted that many stocks from the utilities sector are showing better chart action than the general market. In addition, utilities are often steady dividend payers, offering a stream of income in addition to price appreciation.
The Utilities Select Sector SPDR (XLU) can serve as a gauge of overall sector strength. It shows a gain of 15% from the Aug. 9 bottom through the monthly high price of $33.99, reached on August 31.
This ETF seeks to match the performance of the similarly named index. Despite pulling back in September's downside trade, the fund continues to hold above its 50-day moving average.
Turning to its internals, top holding Southern Company (SO) has shown better price performance than the general market recently. The Atlanta-based electric company's stock price performance has outpaced that of the fund, notching a gain of 4.6% in August. Monthly upside volume was well above average, a bullish sign.
It's worth noting that on Aug. 9, the day of Southern's intermediate low, much of the day's trade came as the stock rallied from its session trough. In other words, there was a good amount of upside trade even as the stock finished the session lower; that can be a positive technical indicator. In this case, the indicator proved reliable, as bulls increased their support for the stock in subsequent weeks.
Southern's record of dividend payment also makes the stock attractive. The company has held its dividend steady or increased it in every quarter for the past five years. The yield currently stands at 4.6%.
Fundamental analysts say the company's positioning in the nation's southeast region is a boon, given a regulatory environment that's more friendly (or at least less hostile) to utilities than in some other regions. Also, analysts expect population growth in the region to continue boosting revenue over the long term.
The second-largest index component is Chicago-based Exelon (EXC), another electric company. It's the largest nuclear-based, power provider in the U.S., operating 11 plants in the Midwest and Mid-Atlantic states.
Exelon's chart also shows price action that has upstaged the broader market.
As is typical with utilities, fast-paced price growth does not exist, but the stock has regained its key moving averages after tumbling early last month.
Exelon is acquiring the Baltimore-based Constellation Energy (CEG), a $7.9 billion transaction announced earlier this year. The deal should diversify Exelon's revenue stream, but it could face some regulatory hurdles.
The stock's dividend yield is currently 4.9%. The company has a good history of maintaining cash flow, which is a good sign for the maintenance of future dividend payments.
A utility with an even better price performance recently is CenterPoint Energy (CNP), a Houston-based natural gas and electric company. It, too, is a component of the XLU.
August marked the stock's straight sixth month of gains. Earnings growth has been choppy, with a gain in 2010, but no change expected this year. For 2012, analysts anticipate earnings per share of $1.22, up 9% from this year.
Population growth in the company's home region is seen as a revenue driver.
The company is expected to maintain its dividend payments or even raise them in the future. CenterPoint's dividend yield is currently 4%.
The stock has been gaining support at its 10-week moving average since last week, after rebounding from the early August selloff that took down most of the market. It's notched two weeks of above-average, upside volume recently, another signal of technical strength.
Unless there's big merger news -- or a widespread outage -- utilities don't generally make the headlines in the same way as tech and consumer discretionary. But many investors make the mistake of overlooking "boring" sectors that can offer some upside potential to their portfolio. In the current market, some utilities names fit that bill.