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4 Low-Beta Utility Stocks to Bet on Amid Rising Inflation
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Inflation is on the rise again this year, with concerns growing over the Federal Reserve’s timing of its first rate cut. Investors who were hopeful about the Federal Reserve starting its rate cuts as early as March, now believe it could be delayed for a longer period.
The Bureau of Labor Statistics reported last week that the consumer price index (CPI) increased 0.4% month over month, more than January’s rise of 0.3% and the highest since September 2023.
On a year-over-year basis, CPI rose 3.2% in February higher than January’s increase of 3.1%. Core CPI, which strips out the volatile food and energy prices, rose 0.4% sequentially in February. Year over year, core CPI rose 3.8% in February.
Separately, the Bureau of Labor Statistics also said that the producer price index (PPI), which is a measure of the pipeline costs, raw, intermediate and finished goods, rose 0.6% sequentially in February, double the consensus estimate of a rise of 0.3%.
Core PPI increased 0.3%, which also came in above the consensus estimate of a rise of 0.2%. Year over year, PPI increased 1.6%, also the biggest move since September 2023.
Inflation has once again climbed above 3%, higher than the Federal Reserve’s target of 2%. The Federal Reserve adopted a strict monetary tightening campaign and hiked interest rates by 525 basis points since March 2022.
The stance worked as inflation declined sharply from its peak of 9.1% in June 2023. Cooling inflation saw the Federal Reserve pausing its rate hikes at the end of last year and suggesting multiple rate cuts in 2024.
However, inflation is still stubbornly high and it is unlikely that the Federal Reserve will cut interest rates anytime soon. A rate cut in March was already ruled out and now hopes of a rate cut in May too have dimmed. Investors now believe that the first interest rate cut won’t happen before the end of the first half of the year.
Higher interest rates have been making markets volatile after a solid start to the year. With uncertainty over the timing of the first rate cut, markets could stay volatile for a longer period.
Our Picks
Given this situation, it would thus be wise to invest in defensive stocks like utilities. Also, these stocks belong to the category of low-beta stocks (beta greater than 0 but less than 1). Hence, the recommended approach is to invest in low-beta stocks with a high dividend yield and a favorable Zacks Rank. Each of the stocks has a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Atmos Energy Corporation (ATO - Free Report) , along with its subsidiaries, is engaged in the regulated natural gas distribution and storage business. ATO serves nearly 3.4 million customers in more than 1,400 communities in eight states, from the Blue Ridge Mountains in the East to the Rocky Mountains in the West. Atmos Energyoperates more than 72,000 miles of transmission and distribution lines as well as 5,700 miles of interstate pipelines.
Atmos Energy has an expected earnings growth rate of 8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the last 60 days. ATO presently has a Zacks Rank #2. Atmos Energy has a beta of 0.66 and a current dividend yield of 2.79%.
American Water Works Company, Inc. (AWK - Free Report) provides essential water services to over 14 million customers in 24 states and has an employee strength of 6,500. AWK also acquires small water service providers to expand its customer base.
American Water Works Company has an expected earnings growth rate of 6.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 60 days. AWK presently carries a Zacks Rank #2. American Water Works has a beta of 0.63 and a current dividend yield of 2.41%.
Sempra (SRE - Free Report) is involved in the sale, distribution, storage and transportation of electricity and natural gas. Formed in 1998, SRE also invests in, develops and operates energy infrastructure.
Sempra has an expected earnings growth rate of 5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 60 days. SRE presently carries a Zacks Rank #2. Sempra has a beta of 0.71 and a current dividend yield of 3.37%.
Consolidated Water Co. Ltd. (CWCO - Free Report) , along with its subsidiaries, is involved in the development and operation of seawater desalination plants and water distribution systems in areas where naturally occurring supplies of potable water are scarce or nonexistent. CWCO also focuses on expanding operations in areas with a large proportion of tourist properties and a growing population.
Consolidated Water Co. has an expected earnings growth rate of 225.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 60 days. CWCO presently has a Zacks Rank #2. Consolidated Water has a beta of 0.09 and a current dividend yield of 1.39%.
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4 Low-Beta Utility Stocks to Bet on Amid Rising Inflation
Inflation is on the rise again this year, with concerns growing over the Federal Reserve’s timing of its first rate cut. Investors who were hopeful about the Federal Reserve starting its rate cuts as early as March, now believe it could be delayed for a longer period.
The Bureau of Labor Statistics reported last week that the consumer price index (CPI) increased 0.4% month over month, more than January’s rise of 0.3% and the highest since September 2023.
On a year-over-year basis, CPI rose 3.2% in February higher than January’s increase of 3.1%. Core CPI, which strips out the volatile food and energy prices, rose 0.4% sequentially in February. Year over year, core CPI rose 3.8% in February.
Separately, the Bureau of Labor Statistics also said that the producer price index (PPI), which is a measure of the pipeline costs, raw, intermediate and finished goods, rose 0.6% sequentially in February, double the consensus estimate of a rise of 0.3%.
Core PPI increased 0.3%, which also came in above the consensus estimate of a rise of 0.2%. Year over year, PPI increased 1.6%, also the biggest move since September 2023.
Inflation has once again climbed above 3%, higher than the Federal Reserve’s target of 2%. The Federal Reserve adopted a strict monetary tightening campaign and hiked interest rates by 525 basis points since March 2022.
The stance worked as inflation declined sharply from its peak of 9.1% in June 2023. Cooling inflation saw the Federal Reserve pausing its rate hikes at the end of last year and suggesting multiple rate cuts in 2024.
However, inflation is still stubbornly high and it is unlikely that the Federal Reserve will cut interest rates anytime soon. A rate cut in March was already ruled out and now hopes of a rate cut in May too have dimmed. Investors now believe that the first interest rate cut won’t happen before the end of the first half of the year.
Higher interest rates have been making markets volatile after a solid start to the year. With uncertainty over the timing of the first rate cut, markets could stay volatile for a longer period.
Our Picks
Given this situation, it would thus be wise to invest in defensive stocks like utilities. Also, these stocks belong to the category of low-beta stocks (beta greater than 0 but less than 1). Hence, the recommended approach is to invest in low-beta stocks with a high dividend yield and a favorable Zacks Rank. Each of the stocks has a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Atmos Energy Corporation (ATO - Free Report) , along with its subsidiaries, is engaged in the regulated natural gas distribution and storage business. ATO serves nearly 3.4 million customers in more than 1,400 communities in eight states, from the Blue Ridge Mountains in the East to the Rocky Mountains in the West. Atmos Energyoperates more than 72,000 miles of transmission and distribution lines as well as 5,700 miles of interstate pipelines.
Atmos Energy has an expected earnings growth rate of 8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the last 60 days. ATO presently has a Zacks Rank #2. Atmos Energy has a beta of 0.66 and a current dividend yield of 2.79%.
American Water Works Company, Inc. (AWK - Free Report) provides essential water services to over 14 million customers in 24 states and has an employee strength of 6,500. AWK also acquires small water service providers to expand its customer base.
American Water Works Company has an expected earnings growth rate of 6.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 60 days. AWK presently carries a Zacks Rank #2. American Water Works has a beta of 0.63 and a current dividend yield of 2.41%.
Sempra (SRE - Free Report) is involved in the sale, distribution, storage and transportation of electricity and natural gas. Formed in 1998, SRE also invests in, develops and operates energy infrastructure.
Sempra has an expected earnings growth rate of 5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 60 days. SRE presently carries a Zacks Rank #2. Sempra has a beta of 0.71 and a current dividend yield of 3.37%.
Consolidated Water Co. Ltd. (CWCO - Free Report) , along with its subsidiaries, is involved in the development and operation of seawater desalination plants and water distribution systems in areas where naturally occurring supplies of potable water are scarce or nonexistent. CWCO also focuses on expanding operations in areas with a large proportion of tourist properties and a growing population.
Consolidated Water Co. has an expected earnings growth rate of 225.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 60 days. CWCO presently has a Zacks Rank #2. Consolidated Water has a beta of 0.09 and a current dividend yield of 1.39%.