10 Best Electric Utility Stocks To Buy Now
In this article, we discuss 10 best electric utility stocks to buy now. If you want to see more stocks in this selection, check out 5 Best Electric Utility Stocks To Buy Now.
The utilities sector is known for being one of the most defensive parts of the economy because even during tough economic times, households and businesses continue to use electricity. By the mid of 2022, the utilities sector had gone from being one of the poorest performing sectors in the S&P 500 to becoming one of the best. In 2023, the economy and markets may continue to face various challenges, such as increasing interest rates, high inflation, political instability, and slowing global growth. Despite this, the utilities sector may remain popular due to its defensive characteristics, including reliable cash flows and dividends. According to Fidelity Investments, the long-term prospects for utilities could be even more promising. As renewable energy sources become increasingly cost-effective compared to fossil fuels, utilities are at the forefront of the shift towards clean energy. Consumers, businesses, and governments are also actively seeking ways to reduce their carbon footprint. These factors are leading to accelerated earnings growth for the utilities sector, with the average earnings growth recently reaching the highest levels in decades. The utilities sector may have a positive outlook for performance due to a combination of challenging economic conditions and long-term favorable trends resulting from the transition to renewable energy sources.
Previously, we reported that as we headed into the fourth quarter of 2022, utilities stocks were performing better than the overall market by more than 30%. Moreover, utilities have been able to maintain strong returns even in challenging economic conditions. As of October 2022, only the utilities and energy sectors had seen positive gains. During previous recessionary periods, such as in 2001 and 2007-2009, utilities have also performed well due to their resilience in these conditions. In 2022, there was a shift in the market's leadership, which worked in favor of the utilities sector. At the beginning of the year, utilities were relatively undervalued compared to technology and growth segments, which had seen significant growth during the pandemic surge.
According to analysts and researchers, US electric utilities with existing renewable power projects and plans for future projects will benefit the most from the new federal clean energy funding. The Biden administration's $430 billion Inflation Reduction Act includes billions of dollars in tax credits and direct payments for solar, wind, battery, and other renewable energy sources, with the aim of transitioning away from fossil fuels in the electric power supply. The utilities that are already leading in developing solar and wind energy will be the ones to gain the most from this initiative. Ryan Kronk, power markets analyst at consultancy Rystad Energy, told Reuters on February 7, 2023:
"The main beneficiaries are likely going to be the utilities that eventually acquire (these) projects and already had some in the pipeline."
To benefit from the upcoming waves in the utility sector, some of the best stocks to invest in include NextEra Energy, Inc. (NYSE:NEE), Dominion Energy, Inc. (NYSE:D), and PG&E Corporation (NYSE:PCG). Investors can also check out 12 Cheap Utility Stocks to Buy According to Analysts, 16 Best Utility Stocks to Buy Now, and 12 Most Profitable Utility Stocks.
Our Methodology
We scanned Insider Monkey’s database of 943 hedge funds and picked the top 10 companies that provide services in the electric utility sector with the highest number of hedge fund investors. These are the best electric utility stocks to buy according to hedge funds.
Photo by Matthew Henry on Unsplash
Best Electric Utility Stocks To Buy Now
10. Entergy Corporation (NYSE:ETR)
Number of Hedge Fund Holders: 28
Entergy Corporation (NYSE:ETR) is involved in manufacturing and selling electricity in the United States. The company has two main divisions – Utility and Entergy Wholesale Commodities. The Utility segment is responsible for creating, transmitting, distributing, and vending electricity in certain areas of Arkansas, Louisiana, Mississippi, Texas, and New Orleans. On April 10, Entergy Corporation (NYSE:ETR) declared a $1.07 per share quarterly dividend, in line with previous. The dividend is payable on June 1, to shareholders of record on May 4.
On April 3, Ladenburg analyst Paul Fremont initiated coverage of Entergy Corporation (NYSE:ETR) with a Buy rating and a $116 price target. The analyst noted that the company has managed to maintain earnings growth within its desired range despite facing several hurricanes. In a research note to investors, Fremont believes that Louisiana regulators will continue to support Entergy Corporation (NYSE:ETR)’s efforts to improve reliability, and that the company is capable of making the necessary investments to strengthen its infrastructure without causing significant increases in customer bills.
According to Insider Monkey’s fourth quarter database, 28 hedge funds were bullish on Entergy Corporation (NYSE:ETR), compared to 31 funds in the prior quarter. Ben Levine, Andrew Manuel, and Stefan Renold’s LMR Partners is the largest stakeholder of the company, with 314,995 shares worth $35.4 million.
In addition to NextEra Energy, Inc. (NYSE:NEE), Dominion Energy, Inc. (NYSE:D), and PG&E Corporation (NYSE:PCG), Entergy Corporation (NYSE:ETR) is one of the best electric utility stocks to invest in.
9. Xcel Energy Inc. (NASDAQ:XEL)
Number of Hedge Fund Holders: 28
Xcel Energy Inc. (NASDAQ:XEL) produces, transmits, distributes, and markets electricity through its various subsidiaries. It operates in three main segments – Regulated Electric Utility, Regulated Natural Gas Utility, and All Other. The company generates electricity from a variety of sources, including coal, nuclear power, natural gas, hydroelectric power, solar energy, biomass, oil, wood/refuse, and wind power. Xcel Energy Inc. (NASDAQ:XEL) is one of the best electric utility stocks to invest in. On February 23, Xcel Energy Inc. (NASDAQ:XEL) declared a $0.52 per share quarterly dividend, a 6.7% increase from its prior dividend of $0.49. The dividend is payable on April 20, to shareholders of record on March 15.
On April 5, BMO Capital analyst James Thalacker kept an Outperform rating on Xcel Energy Inc. (NASDAQ:XEL) but reduced the company's price target on the shares to $73 from $74. The analyst pointed to the recent update from the Minnesota rate case, stating that the ALJ's recommendation would result in a revenue change of $384 million in total, compared to Xcel Energy Inc. (NASDAQ:XEL)’s updated request of $498 million. The firm noted that although some elements may be altered in the final decision of the commission, a commission order that aligns with the ALJ's recommendation would be favorable for the company.
According to Insider Monkey’s fourth quarter database, 28 hedge funds were bullish on Xcel Energy Inc. (NASDAQ:XEL), compared to 27 funds in the prior quarter. Greg Poole’s Echo Street Capital Management is the biggest stakeholder of the company, with 1.8 million shares worth $131 million.
Here is what Aristotle Capital Management Value Equity has to say about Xcel Energy Inc. (NASDAQ:XEL) in its Q1 2022 investor letter:
“Xcel Energy owns and operates four utilities serving 3.7 million electric customers and 2.1 million natural gas customers in eight states. Headquartered in Minneapolis, Minnesota, the firm generates $11.5 billion in annual revenue and owns infrastructure that ranges from nuclear power plants to wind farms.
The company has been a leader in renewable energy development among regulated utilities. At the end of 2020, 47% of the energy Xcel produced came from carbon-free sources, making it one of the foremost wind producers and renewable energy providers in the U.S. It was also an early mover to announce (in December 2018) a 100% carbon free goal by 2050. The company plans to invest $26 billion in 2022-26, much of it going to renewable energy projects and electric grid infrastructure to support clean energy. (Click here to read full text)
8. The Southern Company (NYSE:SO)
Number of Hedge Fund Holders: 28
The Southern Company (NYSE:SO) and its subsidiaries are involved in the production, transmission, and delivery of electricity, operating in three main segments – Gas Distribution Operations, Gas Pipeline Investments, and Gas Marketing Services. Additionally, The Southern Company (NYSE:SO) is involved in the development, construction, acquisition, ownership, and management of power generation assets, including renewable energy projects.
On February 16, The Southern Company (NYSE:SO) reported a Q4 non-GAAP EPS of $0.26 and a revenue of $7.05 billion, outperforming Wall Street estimates by $0.02 and $2.22 billion, respectively. The revenue increased 22.2% year-over-year, primarily due to higher fuel costs.
According to Insider Monkey’s fourth quarter database, 28 hedge funds were bullish on The Southern Company (NYSE:SO), compared to 31 funds in the earlier quarter. Stuart J. Zimmer’s Zimmer Partners is the biggest position holder in the company, with 1.7 million shares worth approximately $125 million.
7. Duke Energy Corporation (NYSE:DUK)
Number of Hedge Fund Holders: 33
Duke Energy Corporation (NYSE:DUK) is an American energy company that operates in two segments – Electric Utilities and Infrastructure (EU&I) and Gas Utilities and Infrastructure (GU&I). The EU&I segment generates, transmits, distributes, and markets electricity, using various sources such as coal, hydroelectric, natural gas, oil, solar and wind energy, renewables, and nuclear fuel to generate electricity. Additionally, this segment sells electricity to municipalities, electric cooperative utilities, and load-serving entities on a wholesale basis. It is one of the best electric utility stocks to invest in.
On April 4, Duke Energy Corporation (NYSE:DUK) set the price for a private placement of $1.5 billion in aggregate principal amount of 4.125% convertible senior notes due 2026. The initial purchasers have been granted an additional $225 million in aggregate principal amount of the convertible notes to cover over-allotments. The net proceeds from the sale of the convertible notes are estimated to be around $1.476 billion. The sale of the convertible notes was completed on April 6, 2023.
Investment advisory Seaport Global on March 17 upgraded Duke Energy Corporation (NYSE:DUK) from Sell to Neutral without specifying a price target. The firm acknowledged that Duke Energy Corporation (NYSE:DUK) is the only large-cap regulated electric utility that has not disclosed its sustainable earnings power, which could be challenging in a high-interest-rate environment. However, the recent drop in interest rates is expected to benefit the company. Seaport Global suggests that the performance comparison between Duke Energy Corporation (NYSE:DUK) and Dominion Energy, Inc. (NYSE:D) stocks since November 4 indicates that the "pairs trade" is unlikely to change soon. As a result of a recent flight to safety, the firm has decided to upgrade Duke Energy's rating.
According to Insider Monkey’s fourth quarter database, 33 hedge funds were long Duke Energy Corporation (NYSE:DUK), and D E Shaw held a significant stake in the company, with 729,450 shares worth $75 million.
6. American Electric Power Company, Inc. (NASDAQ:AEP)
Number of Hedge Fund Holders: 33
American Electric Power Company, Inc. (NASDAQ:AEP) is a public utility holding company that generates, transmits, and distributes electricity to retail and wholesale customers across the United States. The company uses a variety of energy sources, such as coal, natural gas, renewables, nuclear, hydro, solar, wind, and others, to generate electricity. American Electric Power Company, Inc. (NASDAQ:AEP) supplies and markets wholesale electricity to other utilities, cooperatives, municipalities, and other market participants.
American Electric Power Company, Inc. (NASDAQ:AEP) has reiterated its guidance for 2023 non-GAAP operating earnings, which are expected to be within the range of $5.19 to $5.39 per share, while the consensus estimate came in at $5.29, implying a long-term growth rate of 6% to 7%. The firm also beat Q4 top and bottom line estimates.
According to Insider Monkey’s fourth quarter database, 33 hedge funds were bullish on American Electric Power Company, Inc. (NASDAQ:AEP), compared to 35 funds in the prior quarter. Rajiv Jain’s GQG Partners is the largest stakeholder of the company, with 6.7 million shares worth $640.8 million.
Like NextEra Energy, Inc. (NYSE:NEE), Dominion Energy, Inc. (NYSE:D), and PG&E Corporation (NYSE:PCG), American Electric Power Company, Inc. (NASDAQ:AEP) is one of the best electric utility stocks to watch.
Here is what ClearBridge Investments Value Equity has to say about American Electric Power Company, Inc. (NASDAQ:AEP) in its Q1 2022 investor letter:
“About 5% of the portfolio is in transitioning power companies, typically migrating from coal to renewables. We have been active in encouraging these transitions and added a new position in American Electric Power (NASDAQ:AEP). AEP has the fastest planned renewable energy ramp in the U.S., with plans to both shrink coal and grow renewables by 50% each by 2030. This would drive an 80% emissions reduction, while supporting high single-digit earnings growth at a double-digit return.”
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Disclosure: None. 10 Best Electric Utility Stocks To Buy Now is originally published on Insider Monkey.