These days, it seems like there’s bearish buying pressure everywhere you look in the market. In fact, of the 10 major Sectors in U.S. markets, there’s only one Sector that is showing a bullish trend: Utilities.
Needless to say, the Utilities Sector is the first place I looked when determining what today’s trade would be. And I’m not the only one who’s considering Utilities. When the market is especially volatile (like it’s been this year), many people see utility stocks as low-risk, defensive holdings, and at least for now, the Turner Analytics database agrees with this opinion.
The Water Utilities Industry is ripping higher in this market, and this strength is providing a solid tailwind for today’s recommendation: American Water Works Company, Inc. (AWK).
American Water Works is the country’s largest publicly traded water utility company. It oversees water treatment plants, pumping stations, storage facilities and 45,000 miles of pipes. Experts estimate that through these services, AWK serves more than 15 million people across 45 states—along with one Canadian province.
AWK is my recommendation for you today because it has a unique situation that should work in our favor. The stock receives good Fundamental and Technical Scores (50 out of 100 and 74 out of 100, respectively) and it’s in an industry that is pushing its price higher by association.
Of course, it also helps that the share price has been steadily increasing over the past three years, as you can see in the graph below. So we know that this stock has the ability to give us some great returns over time, even in a weak market. In fact, AWK has risen more than 6% so far this year, and it hit its all-time high of $66.46 on February 3.
I’m confident that we’ll continue to see price increases for this holding, too. In January, water utilities rose 8% overall, while the S&P declined 5%, and I expect the Industry pressure to keep increasing in the near term.
And AWK is doing its part to support higher share prices, as well. The company is working to expand its reach and better itself. In the first nine months of 2015, American Water Works spent $44 million to acquire a variety of small water utilities companies across the U.S. During the same time period, it invested $793 million to replace and improve existing water and wastewater systems.
American Water Works is also in an excellent position to help with infrastructure improvements that are especially prominent right now as people work to ensure that issues like the lead-poisoned water in Flint, Michigan do not happen again.
Looking forward, the company plans to expand EPS growth by 7%-10% over the next five years—and since it pays a dividend (2.13% dividend yield at current prices), this growth will be passed along to shareholders, too.
I recommend that you enter AWK at $63.60 or better, and set your stop at $57.55. Our near-term target is $66.10.