Consolidated Edison, Inc. (ED), Dominion Resources, Inc. (D), Public Service Enterprise Group Inc. (PEG): After A Utility Sell-Off These Three Stocks Could Be Next

JNJ Forward PE Ratio data by YCharts

The Hershey Company (NYSE:HSY), like Johnson & Johnson (NYSE:JNJ), is a likely candidate to follow utility stocks lower. Hershey used to be a high yielding stock but the recent share price rally has left the stock with a dividend yield just below 2%. That being said, given the historically low interest rate environment, I would still say that Hershey is impacted by a rise in rates as the dividend is less attractive relative to bonds. Like J&J and utilities, Hershey is a defensive name given that its business has relatively little exposure to economic trends. Finally, as shown by the chart below, Hershey is trading at high valuations relative to its historic norms.

HSY Forward PE Ratio data by YCharts

Reynolds American, Inc. (NYSE:RAI) is also a likely candidate to follow utility stocks lower. Much like a utility, Reynolds American pays a healthy divided (currently 5%) and has attracted income seeking investors. Due to this, it is not unreasonable to expect Reynolds American to come under some selling pressure as interest rates rise. Also, Reynolds American, one of the largest tobacco companies in the world, is a defensive name with minimal exposure to economic trends. Finally, as shown by the chart below, Reynolds American is trading at historically high valuations.

RAI Forward PE Ratio data by YCharts

Conclusion

Utility stocks seem to be the first group of defensive stocks to lose ground as the stock market bull continues to mature. I expect that other defensive stocks will soon come under pressure as investors react to rising interest rates, an improving economy, and rich valuations. Given their status as dividend payers, non cyclical stocks, and high valuations Johnson & Johnson, Hershey, and Reynolds American are all names to be cautious on given the current environment.

Sammy Pollack has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources and Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson.

The article After A Utility Sell-Off These Three Stocks Could Be Next originally appeared on Fool.com.

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