3 Utilities Stocks to Sell in May Before They Crash & Burn

Stocks to sell

The year 2023 was tumultuous year utilities stocks. Several companies faced significant challenges that led to their stocks being considered potential sells. As a result, investors may want to consider selling their shares in these companies. The reputational damage and potential legal liabilities could weigh heavily on their future performances. These utilities stocks to sell need to evacuate your portfolio before they crash.

Another factor that could lead to selling pressure in the utilities sector is the projected decline in electricity sales. These are expected to have fallen by 1.2% in 2023 due to milder weather conditions.

I think that these companies are great picks overall to create a defensive portfolio. However, some names should be avoided at all costs. Dividends aside, one can risk serious capital depreciation if one invests in the wrong companies.

So here are three utilities stocks to sell in May before they crash and burn.

Sempra Energy (SRE)

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Sempra Energy (NYSE:SRE) has significant exposure to the natural gas market, which is facing increasing regulatory scrutiny and potential declines in demand as the shift towards renewable energy continues.

In 2023, Sempra reported strong financial results, including an adjusted EPS of $4.61, slightly exceeding its guidance range. However, the future outlook is uncertain due to potential declines in natural gas demand and increased competition from renewable energy sources.

Moreover, the company’s heavy investments in natural gas and related infrastructure might become liabilities as the market dynamics shift. Sempra has announced a significant capital plan increase to $48 billion from 2024 to 2028, focusing on traditional energy projects. This strategic focus could expose the company to financial risks if regulatory changes accelerate the transition away from fossil fuels.

I think that SRE then has an unattractive risk profile. Natural gas is an alternative to thermal coal, but I feel that it’s a transitory energy source. Nuclear, solar, wind, and other renewable sources may have the best opportunities.

Energy Vault (NRGV)

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Energy Vault (NYSE:NRGV) focuses on energy storage solutions, but the company has not yet achieved profitability. Despite promising revenue growth, the high cost of deploying new technologies makes it a risky option.

In 2023, the company reported a significant revenue increase to $341.5 million, a 130% year-over-year growth, driven by successful deployments of its battery energy storage systems. Despite this growth, Energy Vault reported a net loss of $98.4 million for the year.

Financially, Energy Vault ended Q1 2024 with $136.8 million in cash and no debt, reflecting a strong liquidity position. However, the company’s cash and restricted cash significantly decreased from $35.6 million at the end of December 2023 to $1 million. Equity financing therefore could be on the table, which may dilute existing shareholders.

NRGV is also eying up investments in green hydrogen hybrid energy storage systems, but this could be seen as a foray into a speculative market, which throws more uncertainty on NRGV’s long-term fundamentals.

York Water (YORW)

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York Water (NYSE:YORW) is a traditionally stable stock, but its slow growth and dependence on regulatory rate increases for revenue may not be appealing in the current economic climate.

The revenue for Q1 2024 was $17.6 million, a 14% increase from Q1 2023, and net income was $4.33 million, up 19% year-over-year. While these figures exceed analyst expectations, the company’s growth prospects are limited. 

The company recently settled a rate case recognizing its $176 million investment to improve water and wastewater infrastructure. However, the dependence on regulatory approvals for rate increases adds an element of uncertainty and risk.

YORW offers little in the way of capital appreciation or dividends also. Over the last five years, its stock price has increased by only 10.26%, while its dividend has grown by a measly 4% year-over-year since 2017.

Remaining invested in YORW then comes with a high potential opportunity cost, which then makes it one of those utilities stocks to sell.

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

Matthew started writing coverage of the financial markets during the crypto boom of 2017 and was also a team member of several fintech startups. He then started writing about Australian and U.S. equities for various publications. His work has appeared in MarketBeat, FXStreet, Cryptoslate, Seeking Alpha, and the New Scientist magazine, among others.

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