A worker on a traveling crew from Florida Power and Light repairs Pepco power lines downed by heavy storms in Bethesda, Md., in July 2012. © JONATHAN ERNST, Newscom, Reuters

Compiled from StockScouter ratings by Verus Analytics

Utility stocks – known for their generous yields and glacial-paced growth -- lagged the S&P 500 ($INX) considerably in 2013, as investors embraced risk in a roaring bull market and, at the same time, dividend stocks fell out of favor as interest rates showed signs of rising. 

But 2014 has been a different story. A volatile market, geopolitical fears and corrections in many highly-valued growth names have led more investors back into the relative safety of utility and energy stocks.

While the S&P 500 has fought to stay positive this year, adding just 1.4 percent to date, the Utility Select Sector SPRD (XLU) ETF has gained 11.9 percent. The Energy Select Sector SPDR (XLE) has gained 5.7 percent. 

Leading StockScouter’s latest list of 10 stocks to watch is a Washington, D.C., area electric and natural gas utility, Pepco Holdings (POM). Pepco shares get a '10' from the StockScouter rating system on MSN Money, the highest score possible. Based on StockScouter's analysis, shares of POM are expected to significantly outperform the market over the next six months with less than average risk.

Energy companies have been cropping up regularly in StockScouter’s picks of late, and this week is no different, with Cabot Oil & Gas (COG), ConocoPhillips (COP) and Chevron (CVX) all ranking in the top 10.

Finally, it’s also worth noting that telecommunications giants Verizon (VZ) and AT&T (T), which pay utility-caliber dividends, have appeared on this list nearly every week since topping StockScouter’s recommendations back on Feb. 21. In that time, AT&T shares have risen 9.4 percent, but Verizon shares have stayed relatively flat.

Read the full Scouter report on Pepco Holdings here

StockScouter Top 10 for May 9

Company

Sector

Dividend yield

Forward P/E

Scouter score

Pepco Holdings (POM)

Electric utility

3.9%

21.1

10

AT&T (T)

Telecommunications

5.1%

11.89

Verizon (VZ) 

Telecommunications

4.4%

11.9

9

Cabot Oil & Gas (COG)

Oil and gas0.2%22.010

Delta Airlines (DAL)

Airlines0.6%10.310

ConocoPhillips (COP)

Oil and gas

3.6%

11.7

9

Chevron (CVX)

Oil and gas

3.4%

10.2

9

21st Century Fox (FOXA)

Media

0.7%

18.2

9

Dow Chemical (DOW)

Chemicals

3.0%

12.7

9

Freeport McMoRan (FCX)

Copper and gold miner

3.7%

12.3

9

StockScouter beats the market

We think the StockScouter rating system developed by Verus Analytics for MSN Money is one of the best tools you can use when you're trying to decide where to invest.

StockScouter looks for stocks whose business fundamentals, price behavior, valuation and stock-ownership characteristics appear to predict a rising price in the future, based on how those factors have influenced stock prices in the past.

The system assigns each stock an expected six-month return and balances that return against the stock's expected volatility.

Scouter rates stocks on a scale of 1 to 10, and ratings can change daily. Ratings and data in the chart above were current as of this article's publication date.

In addition to the daily top 10 list described above, StockScouter is used by investment research firm Verus Analytics (previously known as the quantitative business unit of Gradient Analytics) to generate a monthly benchmark portfolio of stocks that, refreshed monthly, has outperformed the market since its inception in August 2001.

An investor who began in 2001 by investing in each of the benchmark portfolio's top 10 stocks at the start of the month, selling them at the end of the month and then starting fresh with a new group of 10 stocks, would have generated returns, before trading costs and taxes, of 1,026 percent through April 30, 2014.

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Writer Jon Markman, at the time a columnist for MSN Money, collaborated with company researchers on the tool.

Markman suggested rolling over the top 10 stocks every six months to hold down trading costs, a strategy that might be a better fit for most investors; that would yield different results, which would vary based on your starting point.

Performance through April 30, 2014

Full 50 position portfolio    

Index

1 month

3 month

6 month

1 year

Since
inception

Average
annual
return

Portfolio

-1.7%

3.6%

5.9%

14.5%

581.6%

16.8%

Nasdaq

-2.0%

0.3%

5.0%

23.6%

103.0%

7.6%

S&P 500

0.6%

5.7%

7.3%

17.9%

55.5%

4.7%

DJIA

0.8%

5.6%

6.7%

11.7%

57.6%

4.7%

Top 10 portfolio

Index

1 month

3 month

6 month

1 year

Since
inception

Average
annual return

Portfolio

-3.7%

4.9%

7.5%

4.6%

1,025.7%

20.7%

Nasdaq

-2.0%

0.3%

5.0%

23.6%

103.0%

7.6%

S&P 500

0.6%

5.7%

7.3%

17.9%

55.5%

4.7%

DJIA

0.8%

5.6%

6.7%

11.7%

57.6%

4.7%

Inception: August 2001