Market Overview

Three Defensive Stock Picks for 2013 (AEP, AWK, CTL)

Bank of America Merrill Lynch offered some defensive stock picks for 2013 in a research report. Two utilities and a telecom made the list. They were American Electric Power (NYSE: AEP), American Water Works (NYSE: AWK) and CenturyLink (NYSE: CTL).

Here is a quick look at how these three picks have performed recently and what analysts expect from them.

American Electric Power

This Columbus, Ohio-based utility company has a market capitalization near $21 billion and a dividend yield of about 4.3 percent. The long-term earnings per share (EPS) growth forecast of more than three percent is similar to that of competitor Duke Energy (NYSE: DUK), and its return on equity of almost 10 percent is greater. The price-to-earnings (P/E) ratio is less than the industry average, but the operating margin is greater than the industry average. Short interest is about one percent of the float, the lowest it has been since April.

Of the 22 analysts surveyed by Thomson/First Call who follow the stock, 13 recommend buying shares, six of them rating it at Strong Buy. The mean price target, or where analysts expect the stock to go, is less than six percent higher than the current share price, and would be a little higher than the 52-week high from last October.

Shares pulled back more than six percent following Hurricane Sandy but have started to recover. Despite that drop, the stock has outperformed competitors CenterPoint Energy (NYSE: CNP) and Duke Energy, as well as the Dow Jones Industrial Average, over the past six months.

American Water Works

This New Jersey-based company serves customers in the United States and Canada, and it has a market cap of more than $6.5 billion and a dividend yield near 2.6 percent. The long-term EPS growth forecast is about 10 percent, though analysts have underestimated quarterly EPS recently. The P/E ratio is less than the industry average. All but four of the 17 analysts surveyed recommend buying shares, but none recommend selling. Their mean price target represents about nine percent potential upside, which would be a new multiyear high.

Shares have traded mostly between $36 and $38 since August, but are up about 20 percent year to date. The stock has underperformed competitor American States Water (NYSE: AWR) over the past six months, but it has outperformed the S&P 500.

CenturyLink

This integrated telecommunications company is headquartered in Monroe, Louisiana, and sports a market cap of more than $23.5 billion and a dividend yield near 7.5 percent. The P/E ratio is lower than that of larger competitors AT&T (NYSE: T) and Verizon Communications (NYSE: VZ), but the long-term EPS growth forecast is less than two percent. Shares sold short represent about four percent of the float, though that is the lowest number since May.

All but six of the 22 analysts surveyed recommend buying shares; seven of them rate it at Strong Buy. They believe the stock has some room to run as their mean price target is more than 13 percent higher than the current share price, or a little more than the 52-week high from back in October.

The share price has declined more than nine percent over the past 90 days but is still more than six percent higher than a year ago. Over the past six months, the stock has outperformed AT&T but underperformed Verizon and the broader markets.

Posted-In: American Electric Power American States Water American water works AT&T CenterPoint Energy CenturyLink duke energy VerizonLong Ideas Short Ideas Trading Ideas Best of Benzinga

 

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