In practically any market environment, utility stocks make sense. As I’ve said countless times before, bad things happen when people flip the switch and light fails to emerge. Further, short of food and water, nothing could be more critical than essential services.
However, when the economy – while booming in one respect from the blistering job numbers – is facing challenges such as inflation and high interest rates, people tend to monitor their spending. However, they can’t cut the essentials. Therefore, companies in the utilities business tend to be relatively insulated from broader headwinds.
On the other hand, these ideas are boring. Still, boring could be good at this juncture. With that in mind, below are utility stocks to consider.
Duke Energy (DUK)
Specializing in the regulated electric subcategory, Duke Energy (NYSE:DUK) represents one of the top utility stocks. Per its public profile, Duke generates, transmits, distributes and sells electricity in the Carolinas, Florida and the Midwest. It accomplishes this directive through traditional means (like coal and natural gas) along with renewables such as solar and wind.
To be fair, Duke isn’t exactly the most discounted idea among utility stocks. Presently, DUK trades hands at 18.5X trailing-year earnings and 2.63X trailing-year revenue. However, investors ought to note that the company offers a forward annual dividend yield of 4.14%. Moreover, Duke should benefit from fundamental realities; namely, the migration of young workers to lower-cost regions such as the Carolinas.
For the current fiscal year, covering experts anticipate earnings per share to reach $5.97. That’s a decent step up from last year’s print of $5.56. On the top line, sales may reach $30.12 billion, up 3.6% from last year’s haul of $29.06 billion.
Sempra (SRE)
One of my favorite utility stocks, Sempra (NYSE:SRE) isn’t exactly making friends on the ground floor. If you follow local news in San Diego where Sempra is headquartered, the general sentiment toward the utility giant isn’t exactly favorable. That said, people don’t have much of a choice. If the company raises rates, customers must open their wallets.
It’s incredibly frustrating. However, that’s the cynical argument that undergirds most if not all utility stocks. Especially in California, if you want to play, you’ve got to pay. In SRE’s case, you’re talking about 15X trailing earnings and 2.73X trailing sales. While not the cheapest idea out there, Sempra offers a decent forward yield of 3.44%. Further, the payout ratio sits at just under 50%.
For the current fiscal year, analysts anticipate EPS of $4.81, up from last year’s result of $4.61. However, the revenue target of $16.52 billion is off 1.2% from 2023. Still, a recovery to $17.25 billion could occur in fiscal 2025.
Portland General (POR)
It’s possible that not too many people outside of Oregon have heard of Portland General (NYSE:POR). Regardless, this is a name that should be on your radar for utility stocks to buy. Again, it doesn’t have the recognition of other players in the ecosystem. However, Portland General may benefit from economic realities; namely, rising prices are forcing dynamic migration patterns.
Notably, the Portland area continues to be popular with young adults and that could be the key to success here. Like Duke Energy, Portland General is located where the money will be. As major metropolitan areas – particularly on the eastern and western coastlines – become increasingly unattainable, Oregon could absorb young workers. That’s a win-win for all involved.
While I wouldn’t characterize POR stock as objectively undervalued, it trades for 1.46X trailing-year revenue. That’s better than many other utility stocks. Also, it’s worth pointing out that in fiscal 2024, experts project revenue to hit $3.03 billion. That implies a 3.7% lift from last year’s print of $2.92 billion.
National Grid (NGG)
An international player in regulated electric space, National Grid (NYSE:NGG) is based in the U.K. Per its corporate profile, National Grid transmits and distributes electricity and gas. Fundamentally, the argument is the same as other utility stocks. First, the company’s customers must pay up irrespective of whatever else is going on in the economy.
Second and just as importantly, National Grid benefits from a natural monopoly. Thanks to high barriers of entry – which include meeting stiff regulatory standards – would-be rivals are quickly discouraged from competing. That makes NGG entrenched in its core markets. Subsequently, investors can bank on this dominant footprint as well as the company’s massive 5.29% dividend yield.
Currently, analysts rate shares a consensus moderate buy. As a global utility provider, NGG doesn’t get much coverage stateside. However, investors seeking to diversify their holdings should give it a look. In particular, shares trade at only 5.06X trailing-year earnings, making it deeply undervalued on paper.
Edison (EIX)
Headquartered in Rosemead, California, Edison (NYSE:EIX) is another player in the regulated electric space, engaging in the generation and distribution of electric power. Per its corporate profile, Edison supplies and delivers electricity to approximately a 50,000 square-foot-mile area of Southern California. It serves the full gamut of clients, ranging from residential, commercial, industrial and public authorities.
While there’s always much criticism of California from an ideological and political stance, the fact of the matter is, the Golden State represents the economic engine of the U.S. So, people will always find a way to move to California for the underlying opportunities. As such, Edison makes an intriguing case for utility stocks to buy.
What’s more, analysts believe that fiscal 2024 EPS should hit $4.94. That’s a solid improvement over last year’s result of $4.76. Conspicuously, they also see expansion in the top line at $17.54 billion. If so, we’re talking about a year-over-year growth rate of 7.3%.
NextEra Energy (NEE)
One of the top names among utility stocks, NextEra Energy (NYSE:NEE) has garnered a reputation for pivoting toward clean energy solutions. According to its public profile, NextEra generates electricity through a variety of means, from the traditional such as natural gas and nuclear to wind and solar. It also develops and constructs contracted assets focused on clean solutions, such as renewable generation facilities.
To be fair, the green ecosystem struggled amid economic challenges and monetary policy concerns. Obviously, we’re still not out of the woods yet. However, the market has gradually priced in the challenges to the NEE stock price. Recent trades look much more encouraging for bullish investors. Still, a price-to-sales ratio of 5X is a bit on the rich side.
Looking to the end of fiscal 2024, analysts see EPS improving to $3.40. Last year, the metric sat at $3.17. Now, the top line could disappoint this year at $27.87 billion, down about 1%. However, fiscal 2025 revenue could clock in at over $30 billion, with the high-side target looking for $34.34 billion.
Essential Utilities (WTRG)
Mixing it up at the end, Essential Utilities (NYSE:WTRG) is a big player in the regulated water ecosystem. According to its corporate profile, the company operates regulated utilities that provide water, wastewater and natural gas services in the U.S. It serves approximately 5.5 million customers covering residential, commercial and industrial needs.
Fundamentally, what makes Essential so relevant is found in the company name: water is an essential commodity. In fact, you can make the argument that it’s the most essential commodity because it has no alternative. Further, declining freshwater supplies means that we must be good stewards of the resource. In that sense, WTRG stock’s high multiples may be tolerated.
For the current fiscal year, analysts are looking for EPS of $1.98, up from last year’s print of $1.86. Moreover, they’re seeking sales of $2.33 billion, up 13.3% from 2023’s haul of $2.05 billion. Combined with a forward dividend yield of 3.36%, WTRG is an intriguing idea for utility stocks to buy.
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.