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Fed to Keep Rates Same in 2021: 3 Utility Stocks to Benefit
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The Federal Reserve has decided to keep the federal funds rate unchanged at 0-0.25%. The basic objective of keeping the rate low is to support the U.S. economy. The Fed aims to create more employment and keep the inflation rate at 2% over a longer period of time by keeping the rates unchanged.
The novel coronavirus outbreak drastically lowered economic activities in 2020, primarily due to lockdowns and stay-at-home directives. Distribution of vaccines and increasing knowledge about the virus helped to control the spread of COVID-19 in the United States.
The Fed officials expect the unemployment level for fourth-quarter 2021 to be 4.5%, down from the May-end level of 5.8% backed by favorable policy and reopening of economic activities. The Fed will support the economy by purchasing bonds worth $120 billion per month until employment increases and inflation stabilizes to the desired level of 2%. It now expects GDP growth of 7% in 2021, up from 6.5% expected in the March meeting, and inflation rate to touch 3.4% at 2021-end.
If the situation improves, the Fed might revise the interest rates once in 2022 and follow that up with more revisions in 2023. However, it is not going to take any drastic decision, and will revise the rates only if the economic conditions are conducive and appropriate to accommodate the change.
Given the above backdrop, capital-intensive industries like utilities will gain from the Fed’s decision to keep interest rates unchanged this year as well. The domestic-focused, regulated and capital-intensive utilities tend to benefit when interest rates are low as it lowers the cost of capital. The low rate enables utilities to source funds at a cheaper rate, continue with infrastructure upgrades and pay out regular dividends to shareholders.
It is advisable to stay invested in domestic-focused utilities, which are often considered as an alternative to bonds for steady returns. Moreover, demand for utility services doesn’t fluctuate much, even amid weak economic conditions.
At times when internal sources of funding of the utilities are insufficient, they have to borrow the same from the market to continue with costly long-term projects. A low rate allows utilities to avail cheap funding and refinance high-cost debt with low-cost debt. Moreover, the continuation of utility capital projects will assist in the creation of new jobs, which are quite essential to bring the economy back on track.
Our Utility Picks
Per the proprietary Style Scores, stocks with the combination of a VGM Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer solid investment opportunities. We have utilized the Zacks Stock Screener for selecting three stocks from the Zacks Utilities sector based on features that make them attractive despite their prevailing debt levels. All these stocks have a debt to capital of more than 55%, which indicates that they have been utilizing more borrowed funds to operate their business. The low-interest rate environment will give these companies an opportunity to refinance their existing debts with low interest bearing debts and extend the period of repayment of the borrowed funds.
Price Performance (Six Months)
Image Source: Zacks Investment Research
UGI Corporation (UGI - Free Report) , which currently carries a Zacks Rank #2, delivered an earnings surprise of 58.6% in the last four quarters. It has a VGM Score of B and long-term (three to five years) estimated earnings growth of 8%. Its dividend yield is 2.93% and return on equity (TTM) is 14.86%, better than its sector’s 9.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for fiscal 2021 earnings has moved up 3.4% to $3 per share in the past 60 days.
NewJersey Resources Corporation (NJR - Free Report) , which currently carries a Zacks Rank #2, delivered an earnings surprise of 27.4% in the last two quarters. It has a VGM Score of B and long-term estimated earnings growth of 7.1%. Its dividend yield is 3.06% and TTM is 14.72%, better than its sector’s 9.3%.
The Zacks Consensus Estimate for fiscal 2021 earnings has moved up by 19.7% to $2.07 per share in the past 60 days.
Unitil Corporation (UTL - Free Report) , which currently carries a Zacks Rank #2, delivered an earnings surprise of 9.5% in the last two quarters. It has a VGM Score of B and long-term estimated earnings growth of 3.9%. Its dividend yield is 2.65% and TTM is 9.22%, better than the industry’s 8.9%.
The Zacks Consensus Estimate for 2021 earnings has moved up 1.7% to $2.43 per share in the past 60 days.
Time to Invest in Legal Marijuana
If you’re looking for big gains, there couldn’t be a better time to get in on a young industry primed to skyrocket from $17.7 billion back in 2019 to an expected $73.6 billion by 2027.
After a clean sweep of 6 election referendums in 5 states, pot is now legal in 36 states plus D.C. Federal legalization is expected soon and that could be a still greater bonanza for investors. Even before the latest wave of legalization, Zacks Investment Research has recommended pot stocks that have shot up as high as +285.9%
You’re invited to check out Zacks’ Marijuana Moneymakers: An Investor’s Guide. It features a timely Watch List of pot stocks and ETFs with exceptional growth potential.
Image: Bigstock
Fed to Keep Rates Same in 2021: 3 Utility Stocks to Benefit
The Federal Reserve has decided to keep the federal funds rate unchanged at 0-0.25%. The basic objective of keeping the rate low is to support the U.S. economy. The Fed aims to create more employment and keep the inflation rate at 2% over a longer period of time by keeping the rates unchanged.
The novel coronavirus outbreak drastically lowered economic activities in 2020, primarily due to lockdowns and stay-at-home directives. Distribution of vaccines and increasing knowledge about the virus helped to control the spread of COVID-19 in the United States.
The Fed officials expect the unemployment level for fourth-quarter 2021 to be 4.5%, down from the May-end level of 5.8% backed by favorable policy and reopening of economic activities. The Fed will support the economy by purchasing bonds worth $120 billion per month until employment increases and inflation stabilizes to the desired level of 2%. It now expects GDP growth of 7% in 2021, up from 6.5% expected in the March meeting, and inflation rate to touch 3.4% at 2021-end.
If the situation improves, the Fed might revise the interest rates once in 2022 and follow that up with more revisions in 2023. However, it is not going to take any drastic decision, and will revise the rates only if the economic conditions are conducive and appropriate to accommodate the change.
Given the above backdrop, capital-intensive industries like utilities will gain from the Fed’s decision to keep interest rates unchanged this year as well. The domestic-focused, regulated and capital-intensive utilities tend to benefit when interest rates are low as it lowers the cost of capital. The low rate enables utilities to source funds at a cheaper rate, continue with infrastructure upgrades and pay out regular dividends to shareholders.
It is advisable to stay invested in domestic-focused utilities, which are often considered as an alternative to bonds for steady returns. Moreover, demand for utility services doesn’t fluctuate much, even amid weak economic conditions.
At times when internal sources of funding of the utilities are insufficient, they have to borrow the same from the market to continue with costly long-term projects. A low rate allows utilities to avail cheap funding and refinance high-cost debt with low-cost debt. Moreover, the continuation of utility capital projects will assist in the creation of new jobs, which are quite essential to bring the economy back on track.
Our Utility Picks
Per the proprietary Style Scores, stocks with the combination of a VGM Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer solid investment opportunities. We have utilized the Zacks Stock Screener for selecting three stocks from the Zacks Utilities sector based on features that make them attractive despite their prevailing debt levels. All these stocks have a debt to capital of more than 55%, which indicates that they have been utilizing more borrowed funds to operate their business. The low-interest rate environment will give these companies an opportunity to refinance their existing debts with low interest bearing debts and extend the period of repayment of the borrowed funds.
Price Performance (Six Months)
UGI Corporation (UGI - Free Report) , which currently carries a Zacks Rank #2, delivered an earnings surprise of 58.6% in the last four quarters. It has a VGM Score of B and long-term (three to five years) estimated earnings growth of 8%. Its dividend yield is 2.93% and return on equity (TTM) is 14.86%, better than its sector’s 9.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for fiscal 2021 earnings has moved up 3.4% to $3 per share in the past 60 days.
NewJersey Resources Corporation (NJR - Free Report) , which currently carries a Zacks Rank #2, delivered an earnings surprise of 27.4% in the last two quarters. It has a VGM Score of B and long-term estimated earnings growth of 7.1%. Its dividend yield is 3.06% and TTM is 14.72%, better than its sector’s 9.3%.
The Zacks Consensus Estimate for fiscal 2021 earnings has moved up by 19.7% to $2.07 per share in the past 60 days.
Unitil Corporation (UTL - Free Report) , which currently carries a Zacks Rank #2, delivered an earnings surprise of 9.5% in the last two quarters. It has a VGM Score of B and long-term estimated earnings growth of 3.9%. Its dividend yield is 2.65% and TTM is 9.22%, better than the industry’s 8.9%.
The Zacks Consensus Estimate for 2021 earnings has moved up 1.7% to $2.43 per share in the past 60 days.
Time to Invest in Legal Marijuana
If you’re looking for big gains, there couldn’t be a better time to get in on a young industry primed to skyrocket from $17.7 billion back in 2019 to an expected $73.6 billion by 2027.
After a clean sweep of 6 election referendums in 5 states, pot is now legal in 36 states plus D.C. Federal legalization is expected soon and that could be a still greater bonanza for investors. Even before the latest wave of legalization, Zacks Investment Research has recommended pot stocks that have shot up as high as +285.9%
You’re invited to check out Zacks’ Marijuana Moneymakers: An Investor’s Guide. It features a timely Watch List of pot stocks and ETFs with exceptional growth potential.
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