It’s pretty clear that the big move we made off of the February lows may take some time to digest, and while the overall picture looks better, the earnings season will surely dictate the direction for at least part of the second quarter. One good avenue for investors to consider, especially with yields sinking once again, is maybe to take profits in cyclicals and move some of those gains to utility stocks.

While U.S. Treasury bonds sold off somewhat Wednesday, the 30-year bond ended the day at a 2.58% yield, which matches the yield from this time last year. That comes despite the fact that the Federal Reserve raised interest rates in December and probably will raise them twice this year. Utilities hit some profit-taking selling and have backed up to decent entry levels.

We screened the Merrill Lynch utility stock research universe and found four Buy-rated companies that make good sense.

Dominion Resources

Many of the Wall Street firms that we cover are still very positive on utilities, and this company is highly rated. Dominion Resources Inc. (NYSE: D) is one of the nation’s largest producers and transporters of energy, with a portfolio of approximately 24,600 megawatts of generation and 6,455 miles of electric transmission lines. Dominion operates one of the nation’s largest natural gas storage systems, with 928 billion cubic feet of storage capacity, and serves utility and retail energy customers in 13 states.

Dominion operates via three divisions. Dominion Virginia Power is focused on regulated electric transmission and distribution that serve residential, commercial, industrial and governmental customers in Virginia and North Carolina. Dominion Generation generates electricity through coal, nuclear, gas, oil, hydro and renewable sources. Dominion Energy centers around regulated natural gas distribution and storage.

The stock was hit recently as the company offered shares to help with its combination with Questar, as well as to repay short-term debt, including commercial paper. This drop in price may offer an outstanding entry point for investors.

Dominion investors are paid a solid 3.85% dividend. The Merrill Lynch price target for the stock is $79, and the Thomson/First Call consensus target is at $76.74. The stock closed most recently at $72.75 per share.

Entergy

This higher yielding company makes the buy list at Merrill Lynch. Entergy Corp. (NYSE: ETR) is an integrated energy company engaged primarily in electric power production and retail distribution operations. It owns and operates power plants with approximately 30,000 megawatts of electric generating capacity, including nearly 10,000 megawatts of nuclear power, making it one of the nation’s leading nuclear generators. The company delivers electricity to 2.8 million utility customers in Arkansas, Louisiana, Mississippi and Texas. Entergy has annual revenues of more than $12 billion and approximately 13,000 employees.

Many analysts like the position of the company’s plants, as they supply some of the petrochemical industry along the Gulf Coast. Petrochemical plants and liquefied natural gas (LNG) export facilities are springing up all across the central Gulf Coast. For the petrochemical industry, the boom is driven by demand, not supply, and so the current lower gas prices actually help this growth trend, which has been a solid revenue silo for Entergy.

Entergy investors are paid an outstanding 4.4% dividend. The Merrill Lynch price target is $80, while the consensus is posted at $75.81. The stock closed Wednesday at $77.21.
PG&E

This is another utility rated Buy at Merrill Lynch that investors can feel super-comfortable owning now. PG&E Corp. (NYSE: PCG) is one of the largest combined natural gas and electric utilities in the United States. Based in San Francisco, with more than 20,000 employees, the company delivers energy to nearly 16 million people in Northern and Central California.

The company operates 141,215 circuit miles of electric distribution lines, 18,616 circuit miles of interconnected transmission lines, 42,141 miles of natural gas distribution pipelines and 6,438 miles of gas transportation pipelines. It operates generation facilities with energy sources such as nuclear, hydroelectric, fossil fuel-fired and photovoltaic.

PG&E shareholders are paid a 3.1% dividend. Merrill Lynch has placed a $61 price target on the stock. The consensus price objective is posted at $60.13. Shares closed trading on Wednesday at $58.67.

PPL

This is another higher yielding utility that income investors can consider. PPL Corp. (NYSE: PPL) serves 321,000 natural gas and 397,000 electric customers in Louisville and 16 surrounding counties, and 543,000 customers in 77 Kentucky counties and five counties in Virginia. The company also provides electric delivery services to approximately 1.4 million customers in Pennsylvania and operates electricity distribution network for the Midlands, South West, and Wales in the United Kingdom.

In addition, the company offers a range of customer-care and back-office services to competitive retail energy suppliers, including customer enrollments; contract management; electronic data exchange; simple and complex billing; and call center operations comprising telemarketing, payment processing and collections of overdue accounts.

PPL is one of the leading utility companies in the United States that plans to continue to increase regulated operations and lower earnings volatility attached to competitive operations. The company raised cash and lowered debt late last year by selling some hydroelectric assets to NorthWestern energy.

PPL investors receive a generous 4.05% dividend. The $39 Merrill Lynch price target is only a little higher than the consensus price target of $38.27. The stock closed Wednesday at $37.56 per share.

The huge capital gains for the sector from the quantitative easing days are way in the rear-view mirror, but that doesn’t change the upside potential for these top companies. Even with rate increases starting to hit the tape, they will remain small and very slow and should continue to have a negligible effect. These top stocks make excellent additions to growth and income total return portfolios looking for safety now.

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