雅虎香港財經 From ‘Degen’ to Disciplined: Why Trading Utility Stocks Beats Chasing Meme Stock Jackpots
“If you don’t know who you are the stock market is an expensive place to find out,” stated legendary economist Adam Smith, back in 1723! That certainly applies currently to degenerative or “degen” traders. As described in a recent Wall Street Journal article, these are more gamblers than traders. Like so many others, they are all consumed by the wild swings in GameStop (NYSE:GME) and other volatile meme stocks. But savvy day traders can enjoy the same rush with robust returns and much reduced risk by trading utility stocks instead.
Any stock, even those with a beta well below the market average, has plenty of movement. From these ups and downs in the share price daily traders can buy or short the stocks to profit. Much of this is based on mean reversion trading. If the price is higher than the historical average, short it. If the price is lower than the historical average, buy! Long story short, the price was set at that historical level by the market so it will probably return.
As a day trader, the risk is reduced as you are not holding your position for long. Trading utility stocks is ideal for mean reversion trading as they offer a high daily volume of shares traded with a low beta. And many times, a high dividend yield for those who want income from their assets. Just like all other day trading, you want a tax-free account with no commission transactions and the best execution to net the most.
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CENTERPOINT ENERGY (CNP)
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Headquartered in Houston, CenterPoint Energy (NYSE:CNP) operates in the Southwest and the Midwest. Volume is around 5 millions shares daily with a beta close to the market avereage of 1. That combination is ideal for day trading utility stocks. There is plenty of liquidity and movement to profit from going long and short.
With a 2.62% dividend yield, there are capture-the-dividend profits that await. These can also be from shorting the stock at this period too. The stock price does not just rise around the X-dividend, or any date for that matter. It falls, too, to be back to the optimal price as determined by market forces.
The customer base for CenterPoint is growing. During the pandemic, the stock traded well below $20 a share. Now it is over $30, right around the year-high. The low this year was around $27. For those day trading utility stocks, CenterPoint Energy clearly has the stability and liquidity for profits.
EXELON (EXC)
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EXELON (NYSE:EXC) is the nation’s largest utility. There is much to be said for go big or go home in day trading. With about 6.3 million shares traded daily, traders do not have to worry about distorting the price when going long or short.
The low beta is testament to that. The price of Exelon does not move that much, owing largely to institutional ownership. Stocks that do not swing wildly are good for day traders as there is little concern about being caught on the wrong side of a volatile swing. There are many feeling that pain now from GameStop movements that you will not get from trading utility stocks.
Even though the beta is about half the market average, the price of Exelon still ranged from $33 to $43 over the last year. That is pleny of latitude for those trading utility stocks to profit both long and short. There is also a 4.34% dividend to reward those who want to focus on buying and holding EXC.
WEC ENERGY GROUP (WEC)
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WEC Energy Group (NYSE:WEC) also serves Midwestern states. The stock is trading near its year low. WEC is down for the last week, month, quarter and year of market action. That is good news for those who looked to short the stock.
But there is plenty to like for the long side too. The profit margin and operating margin are bullish. Sure, some of that is due to the price falling. But a 16.65% profit margin when the average for a utility is under 10% is certainly alluring.
So is the dividend yield of 4.2% , a beta of 0.41 and institutional ownershop of aroud 80%. This a bullish combination as it shows institutional investors such as mutual funds and pension groups are committed to the stock. Much of that is due to the dividend. This dedication is ideal for day trading utility stocks for long and short profits as there should not be wild swings.
On the date of publication, Jonathan Yates did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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