Consumer staples, real estate investment trusts, healthcare, and utilities were among the best-performing sectors of the S&P 500 last month. Each sector has risen by 9% or more in December, outpacing the broader index’s gain of approximately 5%. According to CFRA research analysis, utilities have historically been the best performing S&P sector in December, registering an average gain of 1.9% for the month since 1990.

However, some analysts expect the rallies of the defensive sectors to be short-lived. They believe the trend will reverse when investors return to the big technology and growth stocks that have powered markets upward for years. Furthermore, rising Treasury yields that may follow a more hawkish Fed policy might threaten the current surge in defensive stocks.

Therefore, investors are better off avoiding utility stocks Consolidated Edison Inc. (ED) and ALLETE Inc. (ALE). Wall Street analysts expect them to witness a downturn in the near term.

Consolidated Edison Inc. (ED)

ED, through its subsidiaries, operates in the regulated electric, gas, and steam distribution sectors in the United States. Furthermore, it owns, operates, and develops renewable and energy infrastructure projects; offers energy-related products and services to wholesale and retail clients; and invests in electric and gas transmission projects.

ED’s total operating expenses increased 11.7% year-over-year to $2.76 billion in the third quarter ended September 30, 2021. Its operating income declined marginally from the year-ago value to $850 million. The company’s cash and cash equivalents declined 94.8% for the nine months ended September 30, 2021, to $66 million.

Of the eight Wall Street analysts that have provided ratings for the stock, five rated it Sell. Closing last trading session at $85.32, the average analyst price target of $75.38 represents a potential 11.7% downside.

ALLETE Inc. (ALE)

ALE operates through three segments: Regulated Operations; ALLETE Clean Energy; and Corporate and Other. It generates electricity using coal, biomass co-fired/natural gas, hydropower, wind, and solar power. Additionally, the company focuses on the development, acquisition, and operation of clean and renewable energy projects and owns and runs a wind energy generation plant with a capacity of 1,000 megawatts.

For the third quarter ended September 30, 2021, ALE’s operating expenses increased 24.6% year-over-year to $314.3 million. Its operating income declined 25.2% from the year-ago value to $31.1 million. The company’s net income declined 32.2% from the prior-year quarter to $27.6 million.

ALE’s EPS is estimated to decline 6% in fiscal 2021. The stock has declined 5.2% over the past six months.

The consensus price target of 64.67 represents a 2.53% potential downside from its last closing price of $66.35. 

ED shares fell $1.43 (-1.68%) in after-hours trading Monday. Year-to-date, ED has gained 22.69%, versus a 29.47% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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