With monetary policy possibly about to take a turn for the worst for risk-on assets, investors should consider the best utility stocks to buy. Unfortunately for Wall Street, the Personal Consumption Expenditures (PCE) index came in hotter than economists anticipated. In turn, this dynamic suggests that the Federal Reserve may raise the benchmark interest rate to combat stubbornly high inflation.

Fundamentally, the best utility stocks to buy shield investors from significant volatility because of their underlying natural monopoly. According to Investopedia, “[a] natural monopoly is a type of monopoly that exists typically due to the high start-up costs or powerful economies of scale of conducting a business in a specific industry which can result in significant barriers to entry for potential competitors.”

What makes the below names of the best utility stocks to buy stand out is that they enjoy a combination of relatively strong upside price targets with passive income. Now, the degree to which investors receive either attribute will vary. However, I provided a diversity of ideas so that you can pick what works best for your portfolio.

Southern Co. (SO)

Headquartered in Atlanta, Georgia, Southern Co. (NYSE:SO) is a gas and electric utility holding company. Per its public profile, it’s the second-largest utility in terms of the customer base as of 2021. Through its subsidiaries, it serves nine million gas and electric utility customers in six states. In the trailing year, SO stock slipped 0.32%.

For passive income, Southern features a robust forward yield of 4.29%. This hits higher than the utility sector’s average yield of 3.75%. As well, the company commands 21 years of consecutive annual dividend increases. Certainly, this will be a status that management will want to keep going.

According to Gurufocus.com’s proprietary calculations for fair market value (FMV), SO rates as modestly undervalued. Objectively, the company features solid operational attributes. Its three-year revenue growth rate stands at 10%, above 66.3% of the competition. Also, its net margin is 12.08%, also above 66% of the field. Currently, Wall Street analysts peg SO as a consensus hold. However, their average price target ($70.40) implies 9% upside potential. Thus, SO makes for a balanced example of the best utility stocks to buy.

Exelon (EXC)

Headquartered in Chicago, Illinois, Exelon (NASDAQ:EXC) is the largest electric parent company in the U.S., per its public profile. Presently, it features approximately 10 million regulated electric utility customers. Since the January opener, EXC slipped over 4%. In the trailing year, shares gave up nearly 3% of equity value.

On the passive income front, Exelon offers a decent showing, posting a forward yield of 3.48%. Although it’s a bit below the utility sector’s average yield of 3.75%, the company features a payout ratio of 57.45%. That affords the yield a bit more confidence and credibility. To be fair, though, Exelon only features one year of dividend increases. As for its financials, Exelon is currently working through the impact of the coronavirus pandemic. However, it did manage to post a trailing-year net margin of 11.37%. This stat ranks above 62.53% of the competition.

Turning to Wall Street, covering analysts peg EXC as a consensus moderate buy. In addition,  their average price target stands at $46.30, implying 12% upside potential. Thus, it makes a solid case for the best utility stocks to buy.

Xcel Energy (XEL)

Based in Minneapolis, Minnesota, Xcel Energy (NASDAQ:XEL) is a regulated electric utility and natural gas delivery firm. Per its corporate profile, the company serves more than 3.7 million electric customers and 2.1 million natural gas customers across parts of eight states. Since the Jan. opener, XEL declined by 6%. In the trailing year, it’s underwater to the tune of 2%.

Still, XEL might be a solid discount among the best utility stocks to buy. For passive income, the company carries a forward yield of 3.16%. While it’s a bit under the sector average, Xcel commands 20 years of consecutive annual dividend increases. As well, its payout ratio of 57.6% is relatively manageable.

Per Gurufocus.com’s proprietary FMV calculations, XEL rates as modestly undervalued. As well, its three-year revenue growth rate stands at 8.1%, above 60.75% of the competition. Also, its net margin pings at 11.34%, outpacing 62% of its peers. Finally, Wall Street analysts peg XEL as a consensus moderate buy. In addition, their average price target stands at $73.75, implying 12% upside potential. Thus, it’s well worth considering the best utility stocks to buy.

WEC Energy (WEC)

Calling Milwaukee, Wisconsin home, WEC Energy (NYSE:WEC) is a leading Midwest electric and natural gas holding company with subsidiaries serving 4.6 million customers in Wisconsin, Illinois, Michigan, and Minnesota. Since the January opener, WEC gave up over 3% of its equity value. However, in the trailing year, it managed to poke its head barely above breakeven.

Still, with investor fears rising about the Fed’s future monetary policy strategy, WEC may rank among the best utility stocks to buy. For passive income, the company carries a forward yield of 3.43%. That’s almost in line with the sector’s average yield. As well, it’s on a 19-year streak regarding consecutive annual dividend increases. So close to 20 years, management won’t give up this payout without a fight.

According to Gurufocus.com, WEC rates as modestly undervalued. Objectively, the utility features a three-year revenue growth rate of 8.5%, outpacing 62.53% of the field. Its net margin almost touches 15%, which beats out 75% of its rivals. Finally, covering analysts peg WEC as a consensus moderate buy. Their average price target stands at $102.40, implying 12.5% upside potential. Therefore, it’s another balanced example of the best utility stocks to buy.

American Water Works (AWK)

A public utility firm, American Water Works (NYSE:AWK) provides water and wastewater services in the U.S. Per its public profile, the company provides these services to approximately 1,700 communities in 14 states. It serves a total of approximately 14 million customers. Since the Jan. opener, AWK fell more than 8%, indicating a higher risk profile. For the trailing year, it’s down 6.3%.

Objectively, AWK may require patience. For instance, it trades at a trailing multiple of 31.39, which ranks on the high side. Further, the relevance of its water business should keep the machinery going. As evidence, its net margin stands at 21.62%, outpacing 87.58% of the competition. In terms of passive income, AWK sits a bit on the modest side, with a forward yield of 1.85%. However, the company enjoys 13 years of consecutive dividend increases. In addition, its payout ratio of 50.93% indicates confidence in its sustainability.

Turning to Wall Street, covering analysts peg AWK as a consensus hold. However, their average price target stands at $162.20, implying almost 15% upside potential. Thus, it can make up ground in the capital gains department, making it one of the best utility stocks to buy for rising rates.

Essential Utilities (WTRG)

A utility firm with stakes in Illinois, Indiana, New Jersey, North Carolina, Ohio, Pennsylvania, Texas, and Virginia, Essential Utilities (NYSE:WTRG) provides drinking water and wastewater treatment infrastructure and services. As with American Water Works, Essential Utilities features a higher-risk profile. Since the beginning of Jan., WTRG slipped nearly 8%. For the trailing year, it’s down almost 6%.

Still, contrarian investors may consider WTRG as one of the best utility stocks to buy for rising rates. Per Gurufocus.com, WTRG rates as modestly undervalued. Operationally, the company really comes to life. Its three-year revenue growth rate stands at 15.7%, ranking better than 80.49% of the field. On the bottom line, its net margin stands at 22.04%, outpacing over 88% of sector rivals.

Regarding passive income, WTRG doesn’t provide the most generous rate with a forward yield of 2.59%. Still, it’s something. As well, Essential commands 31 years of consecutive dividend increases. To boot, its payout ratio is just under 56%, which is reasonable for the industry. Lastly, Wall Street analysts peg WTRG as a unanimous strong buy. As well, their average price target stands at $53.25, implying 20% upside potential. Folks, this might be the leader of best utility stocks to buy for rising rates.

Constellation Energy (CEG)

Headquartered in Baltimore, Maryland, Constellation Energy (NASDAQ:CEG) is the nation’s largest producer of carbon-free energy and provides sustainable solutions to homes, businesses, and public-sector customers across the continental U.S. It takes a while to get through the word salad but Constellation specializes in nuclear energy.

Now, from a year-to-date perspective, CEG might seem like a losing proposition, shedding over 3% of equity value. However, in the past 365 days, CEG gained a whopping 72%. That might seem challenging in terms of passive income and you’d be right. Per TipRanks, its dividend yield sits at 0.71% at the time of writing.

To be fair, the company could also shore up its financials. While it features strong revenue growth, its net margin slipped into negative territory on a trailing-year basis. Still, for those who want to speculate on their best utility stocks to buy, CEG could be intriguing. Right now, analysts peg shares as a consensus moderate buy. As well, their average price target stands at $97.60, implying over 23% upside potential.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.