Investing 101: Predictive Analysts Expect These Utility Stocks to Outperform

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Interested in utility stocks with good prospects?

Here we offer an interesting way to search for companies that analysts with a history of predicting performance expect to outperform. Although it is helpful to search for companies that analysts are bullish on, it is also helpful to search for groups of analysts that are historically correct. If those analysts are bullish on a company, it is probably worthwhile to take a second look.

Using analyst ratings from Reuters that are presented on a linear scale (with 1 = "Strong Buy" and 5 = "Strong Sell"), we sliced the ratings data of stocks from the tech sector into three time periods separated by a month, and identified the group of analysts that have shown predictive value -- i.e., been able to accurately predict the direction of stock moves for two consecutive time periods.

We further narrowed down the list by only focusing on those stocks that have seen bullish trends in analyst opinion. In other words, predictive analysts, with a proven (short-term) track record of predicting their stock's direction, think these stocks are due for a rebound. The screen produced three stocks, listed below.

Although past performance is no guarantee of future results, the recent accuracy of these analyst ratings suggests their opinions may be a helpful starting-off point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)

1. FirstEnergy (NYS: FE) : Market cap at $18.37B. Mean average rating changed from 2.47 to 2.44 between 06/03/11 and 07/03/11 (bullish change).

Analysts correctly predicted the direction of the stock over the next month, with the stock generating an alpha of 6.33%. Analysts also got it right between 07/03/11 and 08/02/11, with the mean rating changing from 2.44 to 2.19 (bullish change).

Over the following month, the stock generated an alpha of 3.53% relative to the S&P 500 index, as predicted by the analysts. This same group of analysts now expect the stock to outperform in the future, with the mean rating changing from 2.19 to 2 between 08/02/11 and 09/01/11 (bullish change).

2. Exelon (NYS: EXC) : Market cap at $28.53B. Mean average rating changed from 2.56 to 2.53 between 06/03/11 and 07/03/11 (bullish change).

Analysts correctly predicted the direction of the stock over the next month, with the stock generating an alpha of 7.59%. Analysts also got it right between 07/03/11 and 08/02/11, with the mean rating changing from 2.53 to 2.22 (bullish change).

Over the following month, the stock generated an alpha of 2.95% relative to the S&P 500 index, as predicted by the analysts. This same group of analysts now expect the stock to outperform in the future, with the mean rating changing from 2.22 to 2.17 between 06/07/03 and 04/18/03 (bullish change).

3. NRG Energy (NYS: NRG) : Market cap at $5.68B. Mean average rating changed from 2.33 to 2.2 between 06/03/11 and 07/03/11 (bullish change).

Analysts correctly predicted the direction of the stock over the next month, with the stock generating an alpha of 4.08%. Analysts also got it right between 07/03/11 and 08/02/11, with the mean rating changing from 2.2 to 2 (bullish change).

Over the following month, the stock generated an alpha of 3.37% relative to the S&P 500 index, as predicted by the analysts. This same group of analysts now expect the stock to outperform in the future, with the mean rating changing from 2 to 1.88 between 08/02/11 and 09/01/11 (i.e. bullish change).

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Becca Lipman does not own any of the shares mentioned above.

At the time this article was published Motley Fool newsletter services have recommended buying shares of Exelon. Motley Fool newsletter services have recommended creating a write covered strangle position in Exelon. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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