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Utilities Are Safer Bets When the Market Plays Spoilsport
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Utilities are those almost boring stocks that don’t do anything exciting when everything else seems to be on fire. That’s because they are the guys that deliver your gas or electricity or water and such things day upon day, month upon month and year upon year.
You can’t expect them to start growing super-fast just because other things happen to be, because the number of homes, offices, commercial places, etc. don’t increase at such a high pace. Nor is it easy to lay out and maintain the expensive infrastructure that’s a prerequisite to providing these amenities. Because they carry such a lot of fixed assets, utilities also tend to have a considerable amount of debt.
On the other hand, these services are essential, you can’t do without them. Therefore, demand doesn’t vary too much, even in a bear market, or a recession. This steady revenue stream allows most utilities to pay a nice dividend that some even increase every year. Thus, in a bear market, utilities often get compared with other fixed income assets, and in a situation such as we have today, investors jumping out of other equities often end up piling into these stocks. And it does help to control volatility since these stocks are way more stable than the overall market.
Given its capital-intensive nature and debt load, the rising interest rate doesn’t do the sector any favors. This may be (justifiably) overlooked by investors as they add some utility stocks to their portfolios for stability and income.
Not all utilities are the same, of course. Today, I’ve picked the gas distributors because I think they’re relatively better positioned than the others. Not only do they have the same steady revenue streams that the others have, but they also have some tailwinds, being connected with the heated energy market. Demand is particularly strong in the electric power sector this year although consumption has increased across markets, according to the EIA.
Overall, LNG consumption will increase 4.3% this year because of this strength. In 2023, consumption will drop 2.2% as industrial and electrical power sector demand normalizes. Clean energy initiatives by governments and consumers is a major factor driving demand for LNG.
The following companies offer exposure to this attractive industry, which Zacks has placed in the top 28% of the 250+ industries it has classified. Our research shows that any buy-ranked stock belonging to the top 50% of industries has a good chance of upside. Although utility stocks typically don’t appreciate abruptly, the current environment is supportive, so investing in them may help preserve capital.
South Jersey Industries, Inc. : The Zacks #2 ranked stock reported a 5 cent profit in the last quarter, which bettered the 0 cents estimated. Its 2022 and 2023 estimates have increased 3 cents and 1 cent, respectively, in the last 60 days. Revenue and earnings are currently expected to grow in both in 2022 and 2023. Its dividend yields 3.62%.
New Jersey Resources Corp. (NJR - Free Report) : New Jersey Resources’ 4 cent loss in the last quarter disappointed the street, which was expecting an 8-cent profit. But analysts raised the 2022 estimate by 10 cents (4.2%) in the last 60 days and the 2023 estimate by a couple of cents.
As of now, 2022 revenue and earnings are expected to grow while 2023 numbers are expected to be flattish. The shares have appreciated 8.2% year to date. New Jersey Resources also pays a dividend that yields 3.19%. The shares carry a Zacks Rank #2.
Atmos Energy Corp. (ATO - Free Report) : The Zacks #2 (Buy) ranked stock beat estimates by 7.0% last quarter. Both 2022 and 2023 estimates have increased by a couple of cents since. Analysts are looking for revenue and earnings growth both in 2022 and 2023. The shares have appreciated 10.0% year to date, which is better than the S&P 500’s 18.9% decline. Its dividend currently yields 2.36%.
Chesapeake Utilities Corp. (CPK - Free Report) : Zacks #2 ranked Chesapeake Utilities beat June quarter estimates by 8.6%. Its 2022 estimate has increased 5 cents in the last 60 days although there’s no change in the 2023 estimate. Revenue and earnings are currently expected to grow both this year and in the next. Its dividend yields 1.66%.
One-Month Price Performance
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Utilities Are Safer Bets When the Market Plays Spoilsport
Utilities are those almost boring stocks that don’t do anything exciting when everything else seems to be on fire. That’s because they are the guys that deliver your gas or electricity or water and such things day upon day, month upon month and year upon year.
You can’t expect them to start growing super-fast just because other things happen to be, because the number of homes, offices, commercial places, etc. don’t increase at such a high pace. Nor is it easy to lay out and maintain the expensive infrastructure that’s a prerequisite to providing these amenities. Because they carry such a lot of fixed assets, utilities also tend to have a considerable amount of debt.
On the other hand, these services are essential, you can’t do without them. Therefore, demand doesn’t vary too much, even in a bear market, or a recession. This steady revenue stream allows most utilities to pay a nice dividend that some even increase every year. Thus, in a bear market, utilities often get compared with other fixed income assets, and in a situation such as we have today, investors jumping out of other equities often end up piling into these stocks. And it does help to control volatility since these stocks are way more stable than the overall market.
Given its capital-intensive nature and debt load, the rising interest rate doesn’t do the sector any favors. This may be (justifiably) overlooked by investors as they add some utility stocks to their portfolios for stability and income.
Not all utilities are the same, of course. Today, I’ve picked the gas distributors because I think they’re relatively better positioned than the others. Not only do they have the same steady revenue streams that the others have, but they also have some tailwinds, being connected with the heated energy market. Demand is particularly strong in the electric power sector this year although consumption has increased across markets, according to the EIA.
Overall, LNG consumption will increase 4.3% this year because of this strength. In 2023, consumption will drop 2.2% as industrial and electrical power sector demand normalizes. Clean energy initiatives by governments and consumers is a major factor driving demand for LNG.
The following companies offer exposure to this attractive industry, which Zacks has placed in the top 28% of the 250+ industries it has classified. Our research shows that any buy-ranked stock belonging to the top 50% of industries has a good chance of upside. Although utility stocks typically don’t appreciate abruptly, the current environment is supportive, so investing in them may help preserve capital.
South Jersey Industries, Inc. : The Zacks #2 ranked stock reported a 5 cent profit in the last quarter, which bettered the 0 cents estimated. Its 2022 and 2023 estimates have increased 3 cents and 1 cent, respectively, in the last 60 days. Revenue and earnings are currently expected to grow in both in 2022 and 2023. Its dividend yields 3.62%.
New Jersey Resources Corp. (NJR - Free Report) : New Jersey Resources’ 4 cent loss in the last quarter disappointed the street, which was expecting an 8-cent profit. But analysts raised the 2022 estimate by 10 cents (4.2%) in the last 60 days and the 2023 estimate by a couple of cents.
As of now, 2022 revenue and earnings are expected to grow while 2023 numbers are expected to be flattish. The shares have appreciated 8.2% year to date. New Jersey Resources also pays a dividend that yields 3.19%. The shares carry a Zacks Rank #2.
Atmos Energy Corp. (ATO - Free Report) : The Zacks #2 (Buy) ranked stock beat estimates by 7.0% last quarter. Both 2022 and 2023 estimates have increased by a couple of cents since. Analysts are looking for revenue and earnings growth both in 2022 and 2023. The shares have appreciated 10.0% year to date, which is better than the S&P 500’s 18.9% decline. Its dividend currently yields 2.36%.
Chesapeake Utilities Corp. (CPK - Free Report) : Zacks #2 ranked Chesapeake Utilities beat June quarter estimates by 8.6%. Its 2022 estimate has increased 5 cents in the last 60 days although there’s no change in the 2023 estimate. Revenue and earnings are currently expected to grow both this year and in the next. Its dividend yields 1.66%.
One-Month Price Performance
Image Source: Zacks Investment Research