For the past two years the very defensive and frequent “widows and orphans” portfolio candidate, the utility sector, has brought savvy investors huge returns. With Treasury yields dropping back to lows not seen since the summer of 2012, investors have flocked to the sector and have been well rewarded. A new report from Baird says the sector is fully valued and priced, and it may take continued economic and geopolitical macro concerns to keep capital invested for any extended time.

While the Baird team is not truly bearish on the sector, they make the case that while utility stocks substantially outperformed the S&P 500 and the Nasdaq in 2014, it is very possible that positive momentum will be short lived in 2015. With most utility stocks at or above Baird’s price targets, the analysts forecast limited stock price appreciation from current levels. They also note that if history repeats itself, the first quarter of this year could be a difficult period for utility stocks to outperform.

Here are the only four utility stocks rated Outperform and recommended as a buy for investors at Baird.

ALLETE Inc. (NYSE: ALE) makes the list, and the Baird team feels that company’s above-average earnings per share growth deserves a premium to the industry. ALLETE’s energy businesses include Minnesota Power, Superior Water, Light & Power Co., BNI Coal and ALLETE Clean Energy. Along with the stellar earnings profile, the analysts also value the firm’s real estate at $2 to $3 per share.

ALLETE shareholders are paid a 3.57% dividend. The Baird price target for the stock is $59. The Thomson/First Call consensus is set at $56.17. Shares closed trading on Monday at $54.54.

ALSO READ: 6 Top Internet and Digital Media Stocks to Buy for 2015

CMS Energy Corp. (NYSE: CMS) is a Michigan-based company that has an electric and natural gas utility, Consumers Energy, as its primary business and also owns and operates independent power generation businesses. The Baird team feels the stock should trade in line with peers, reflecting what they view as above average total prospects spurred on by an extensive pipeline of infrastructure investments supported by a constructive regulatory environment.

CMS shareholders are paid a 3.1% dividend. Baird has a $35 price target, and the consensus is set at $34. Shares ended trading on Monday at $35.14.

UIL Holdings Corp. (NYSE: UIL) is a smaller utility that could have solid upside for income accounts looking for conservative stocks. UIL is the parent company of the United Illuminating Company, Connecticut Natural Gas Corporation, Southern Connecticut Gas Company and the Berkshire Gas Company, each more than 100 years old. The company provides for the transmission and delivery of electricity and other energy-related services for Connecticut’s Greater New Haven and Bridgeport areas.

UIL investors are paid a very nice 3.9% dividend. The Baird price objective is $45, and the consensus target is $43.11. The stock closed on Monday at $43.58 a share.

Vectren Corp. (NYSE: VVC) energy delivery subsidiaries provide gas and/or electricity to more than 1 million customers in adjoining service territories that cover nearly two-thirds of Indiana and west central Ohio. Vectren’s nonutility subsidiaries and affiliates currently offer energy-related products and services to customers throughout the country. These include infrastructure services and energy services. The Baird team applies a premium to the price target for the stock, which reflects what they see as above average growth opportunities at the company’s very stable utility subsidiaries, and robust infrastructure services activity for 2015 and beyond.

Vectren investors are paid a 3.3% dividend. Baird has a $48 price target, and the consensus target is lower at $44. Shares closed Monday at $45.52.

ALSO READ: 5 Top High-Yield Dividend Stocks on UBS’s First 2015 Equity Focus List

With limited upside to the Baird targets, these four stocks are really suggested for the last gasp trade of the sector. That said, any headline risk or continued huge strength in the dollar could keep rates low and make these stocks an attractive income alternative.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.