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A Rare Opportunity in Utilities: Pro

Utility stocks are "extremely cheap" compared to bonds and could see returns approaching 10 percent, Fidelity Portfolio Manager Douglas Simmons said Monday.

Simmons, who oversees the $5 billion Fidelity Select Utilities Portfolio (FSUTX), noted that the sector had experienced a 10 percent correction from its April highs.

"But if you look just at the month of May, the group actually underperformed the S&P by 12 percent – in one month," he said. "The last time we saw underperformance of that order of magnitude was over a decade ago in November of 2011."

On CNBC's "Fast Money," Simmons said that the sector offered strong returns, with a dividend yield of 4 percent and earnings growth of 5 percent.

"Historically speaking, a 10 percent return is a competitive return in any rate environment and especially, certainly over time," he added.

(Read More: 2 Taper-Proof Stocks)

Simmons called the sector "already extremely cheap compared to bonds," with the dividend yield twice that of the U.S. Treasury 10-year bond.

"In the 50 years leading up to the Lehman bankruptcy, there were only three times that the dividend-yield sector yielded more than the 10-year bond," he said. "Each time was a tremendous opportunity to buy the sector."

Simmons said that he saw a rare opportunity.

"I think what the market's telling you is that the group's already pricing in some degree of rising rates, and it's viewing this 2 percent 10-year bond yield as largely an aberration," he said.

Simmons's top five holdings included Duke Energy, American Electric Power, PG&E,Sempra Energy and CenterPoint Energy.

In response to a question regarding CenterPoint Energy's stock price, which was 17 times forward earnings, Simmons said, "I think investors are saying they're willing to pay up for this sustainable long-term trend in growth and trend in dividend growth."

(Read More: Are Investors Overconfident in the US?)

Trader disclosure: On June 17, 2013, the following stocks and commodities mentioned or intended to be mentioned on CNBC's "Fast Money" were owned by the "Fast Money" traders: Joe Terranova is long VRTS; Joe Terranova is long SJM; Joe Terranova is long AAPL; Joe Terranova is long SPLK; Joe Terranova is long GLD; Joe Terranova is long TBT; Joe Terranova is long SWN; Joe Terranova is long GOOG JUNE 870 PUTS; Joe Terranova is long GS JUNE 165 PUTS; Joe Terranova is short MINI S&P FUTURES; Stephanie Link is long AAPL; Stephanie Link is long GS; Stephanie Link is long JPM; Stephanie Link is long WF; Stephanie Link is long FB; Stephanie Link is long WY; Stephanie Link is long CSCO; Stephanie Link is long HIG; Josh Brown is long AAPL; Josh Brown is long C; Josh Brown is long TLT; Josh Brown is long XLF; Mike Murphy is long LEN; Mike Murphy is long FB; Mike Murphy is long INTC.

Symbol
Price
 
Change
%Change
UTILITIES
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S&P 500
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US 10-YR
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DUK
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AEP
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PCG
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SRE
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CNP
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