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Best And Worst Q1’16: Utilities ETFs, Mutual Funds And Key Holdings

The Utilities sector ranks last out of the ten sectors as detailed in our Q1’16 Sector Ratings for ETFs and Mutual Funds report. Last quarter , the Utilities sector ranked fifth. It gets our Dangerous rating, which is based on aggregation of ratings of nine ETFs and 34 mutual funds in the Utilities sector. See a recap of our Q4’15 Sector Ratings here . Figure 1 ranks from best to worst eight Utilities ETFs and Figure 2 shows the five best and worst-rated Utilities mutual funds. Not all Utilities sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 20 to 255). This variation creates drastically different investment implications and, therefore, ratings. Investors should not buy any Utilities ETFs or mutual funds because none get an Attractive-or-better rating. If you must have exposure to this sector, you should buy a basket of Attractive-or-better rated stocks and avoid paying undeserved fund fees. Active management has a long history of not paying off. Figure 1: ETFs with the Best & Worst Ratings – Top 5 Click to enlarge * Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5 Click to enlarge * Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The Fidelity MSCI Utilities Index ETF (NYSEARCA: FUTY ) is the top-rated Utilities ETF and the American Century Quantitative Equity Utilities Fund (MUTF: BULIX ) is the top-rated Utilities mutual fund. Both earn a Neutral rating. The Guggenheim S&P 500 Equal Weight Utilities ETF (NYSEARCA: RYU ) is the worst-rated Utilities ETF and the ICON Utilities Fund (MUTF: ICTVX ) is the worst-rated Utilities mutual fund. RYU earns a Dangerous rating and ICTVX earns a Very Dangerous rating. 79 stocks of the 3000+ we cover are classified as Utilities stocks, but due to style drift, Utilities ETFs and mutual funds hold 255 stocks. PPL Corporation (NYSE: PPL ) is one of our favorite stocks held by Utilities ETFs and mutual funds. It is the only Utility stock that earns an Attractive rating. Since 1998, PPL has grown after-tax profits ( NOPAT ) by 10% compounded annually. Over this timeframe, PPL has improved its return on invested capital ( ROIC ) from 6% to 7%, which is the highest ROIC of all 79 Utilities stocks under coverage. Despite the continued strength of PPL’s business, the stock is only up 6% over the past decade and shares are currently undervalued. At its current price of $36/share, PPL has a price to economic book value ( PEBV ) ratio of 0.6. This ratio means that the market expects PPL’s NOPAT to permanently decline by 40% from its current levels. If PPL can grow NOPAT by just 3% compounded annually for the next decade , the stock is worth $59/share today – a 64% upside. Connecticut Water Service (NASDAQ: CTWS ) is one of our least favorite stocks held by Utilities ETFs and mutual funds and earns a Very Dangerous rating. Throughout the history of our model, which dates back to 1998, Connecticut Water Service has never generated positive economic earnings . The company’s ROIC has declined from 5% to 3% over the same timeframe. However, at its current price of $41/share the stock remains significantly overvalued. To justify its current price, Connecticut Water Service must grow NOPAT by 7% compounded annually for the next nine years . While this may not seem like much in terms of profit growth, keep in mind that CTWS has failed to generate economic profits in any year for nearly two decades. Figures 3 and 4 show the rating landscape of all Utilities ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst ETFs Click to enlarge Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds Click to enlarge Sources: New Constructs, LLC and company filings D isclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector or theme. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Comcast Ramps X1 Set-Top Boxes As FCC Plans Market Makeover

Comcast[ ticker symb=CMCSA] is pulling out all the stops marketing its Xfinity video service and its new set-top boxes, at a time when the FCC plans to stoke set-top competition. The nation’s No. 1 cable TV firm advertised its Xfinity video-on-demand service during Super Bowl 50, where the big game’s ad rates were quoted at $2.5 million-plus for 30-second slots. Moreover, Comcast this year launched a social media campaign targeting millennials. Comcast paid Twitter ( TWTR ) to co-develop short Web videos from 19 social media personalities based on their Xfinity product experiences. The social media personalities posted videos on platforms such as Instagram and Vine while Twitter promoted them in tweets. Meanwhile, Comcast says its field technicians are installing 40,000 advanced X1 set-top boxes per day in homes. Some 30% of Comcast’s video customers — more than 7 million — were using X1 set-top boxes as of Jan. 1. By year-end, Comcast expects at least half of its 22 million video subscribers will be using Internet-ready, X1 set-top boxes in their homes. Comast is getting pay-back for its Xfinity marketing push. Comcast added 89,000 video customers in Q4, its biggest quarterly net gain in TV subscribers in eight years. Some analysts forecast Comcast could see a net add in TV subscribers in 2016, despite a trend toward Internet video among young adults, some of whom have never subscribed to pay-TV. “We’ve got to play offense with things like X1,” Comcast CEO Brian Roberts said on the company earnings conference call this month. Comcast’s capital spending is expected to rise 8% in 2016 to $9.2 billion, driven by its X1 deployment and spending at NBCU Universal theme parks. Comcast Offering Short Web Video Clips The X1 entertainment platform provides access to live broadcast, on-demand video and DVR-stored content. In November, Comcast partnered with 30 broadcast and cable networks to bring short-form Web clips to X1 set-tops, as part of its video-on-demand (VOD) lineup. Internet search, Web browsing and a Netflix ( NFLX ) app are not, for now, part of X1. DVR-stored content is in the Internet cloud, not the set-top, providing more space. Customers can watch DVR content on mobile devices as well as TV sets. Analysts say Comcast has put a lot of work into developing a cloud-based TV channel guide and user interface, a voice-controlled remote, programming recommendations, on-screen sports app and social media features for sharing video. “X1 represents the industry’s best-in-class technology due to the volume of content available, the flexible cloud infrastructure and the simplicity of its user interface,” Nomura analyst Anthony DiClemente said in a recent research report. Comcast has a huge VOD library of movies and TV shows. It aims to take advantage of marketing opportunities, such as the Oscars. Comcast in February provided some 20 past Academy Award winners on X1 VOD  as well as content gleaned from past Oscar telecasts. With X1, one goal is to drive up subscribers’ average monthly spending, with VOD and other purchases. Aside from video subscriber gains, the company eyes ad gains. Comcast aims to use viewing data gleaned from set-top boxes for targeted advertising — inserting commercials for specific audiences into VOD and other programming. To protect privacy, set-top viewing data is aggregated and anonymous. Comcast has acquired two companies, FreeWheel and Visible World, to build up its targeted-advertising platform. The cable TV firm also has been working with content companies.  Amid falling TV audience ratings, they’re eager to obtain TV data on par with digital platforms. Advertisers have upped their spending on the Internet, where they can target individuals based on what websites they visit and what searches they conduct. FCC Wants More Set-Top Competition Amid Comcast’s big Xfinity push, federal regulators now aim to increase competition in the set-top box market. The Federal Communications Commission plans to make it easier for consumers to switch from set-top boxes leased monthly from pay-TV companies to new devices sold at retail by consumer electronics or Internet companies. Besides Comcast, the initiative could impact Charter Communications ( CHTR ), Time Warner Cable ( TWC ),   AT&T ( T ) and other pay-TV firms that lease set-top boxes for a monthly fee. The new set-top rules could be approved by year-end, though the pay-TV industry is waging a fight against them, with some support in Congress. The cable firms say the new rules aren’t needed in an arena where innovation sparks fast changes. In any case, it could take until 2019 before more of these set-top consumer products appear in the market, because pay-TV companies would have two years to comply with new regulations. By then, Comcast would have a big head start in rolling out X1 technology. Still, new entrants in the set-top box market could match many X1 features, says Joel Espelien, an analyst at the Diffusion Group. “X1 is nice, but I seriously doubt any of its features are defensible in the long run,” he said. Even features such as cloud-based DVR storage may not set X1 apart, he added. “We see declining interest in DVR among millennials,” added Espelien. “They don’t get why they have to ‘record’ things.”