How to Play the Oversold Utilities Sector for Profit and Avoid the Losers

Shah Gilani|October 4, 2023

One of the places where investors like to go looking for opportunities when markets are sideways (like they are now) is sectors that are extremely oversold. The logic is that oversold stocks, especially in business sectors that are evergreen, are ripe for a bounce as the stock price rebounds.

So I’m not surprised that utility companies are getting a lot of attention right now, because they’ve been getting beaten up for a while, especially over the last handful of weeks, and the sector as a whole is deeply in oversold territory.

But before you start vacuuming up a bunch of utility companies that look cheap right now, it’s worth considering why they became oversold in the first place and what the real chances are that a bounce is forthcoming anytime soon. Utilities tend to pay middling dividends, and because interest rates have remained high, investors have sold them off in favor of the higher yields available in CDs, money market accounts, and other cash products that are benefitting from the high rate environment right now.

Regarding the probability of a bounce, it’s highly variable depending on what’s going on with that individual firm. For example, if a company is paying its dividend by borrowing – as in, they have no net income available to common shareholders – that’s not going to endear that company to investors even in oversold conditions.

Bottom line is, just being oversold is not a “one size fits all” buy signal. Just because a stock looks cheap right now, doesn’t mean it doesn’t have further to fall. You have to do some digging to find the proverbial diamonds in the rough and dodge the traps.

Or, in your case, have me do it for you, like I have in this week’s video:

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Make sure you keep an eye out for my next update – I’ve been working with my research team on something really exciting, and I can’t wait to share it with you.