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5 Utility Stocks to Brave 2016's Market Bugaboos

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Last year’s familiar fears are still haunting investors. The oil price slump has dominated proceedings for most of the month, dragging down broader markets. Meanwhile, fears about China’s economy may have receded into the background for now, but the country continues to suffer from its inherent structural weaknesses.

As a result, all S&P 500 sectors are languishing in the red on a year-to-date basis. In such a scenario, defensive choices like utilities acquire special significance. Incidentally, the Utilities Select Sector SPDR ETF (XLU) has incurred the lowest losses for the year, declining only 0.3% on a year-to-date basis. This is why it would be wise to add some of these stocks to your portfolio in order to protect yourself from the regular headwinds.

Oil Plunges Lower

WTI Crude hit a new low on Tuesday, declining below the $30 level for the first time in more than 12 years. It managed to recover quickly, if only marginally, to close at $30.44 a barrel. This was the lowest level at which it has finished since Dec 1, 2003. Brent Crude also followed suit, falling to $30.86, its lowest finish since Apr 2004.

A supply glut and flagging demand have resulted in a demand supply gap which is only widening. And there seems to be no letting up at either end. Producer blocs and major oil exporting nations alike are determined to pump more oil. Meanwhile, demand from major importers such as China is continually declining.

China Fears Refuse to Simmer Down

Which brings us to China, the market’s other bugaboo. Despite a few promising signs now and then, the country’s economy remains in the doldrums. Broader markets had declined last Thursday after China’s central bank guided the yuan to a five-year low in off-shore trading on Wednesday. This dampened investor sentiment, indicating that weaknesses in China’s economy would intensify.

China’s markets recovered on Friday after the securities regulator discontinued its “circuit breaker” mechanism. But markets have closed at their lowest level since Aug 26, 2015, despite encouraging trade data. This positive report and steps taken to stabilize the country’s currency seem inadequate in the face of inherent economic weaknesses.

Our Choices

Under such circumstances, selecting stocks which have a low beta might be the right thing to do. Also known as beta coefficient, it measures the volatility of a stock in contrast to broader markets. So, it measures the extent to which a stock may be affected by market conditions. Low correlation stocks provide protection during turbulent times as they are less prone to day-to-day fluctuations.

This is why utility stocks, traditionally a defensive play, with a low beta may be a prudent choice at this time. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.

SCANA Corp.’s operations include transmission, distribution, generation and sale of electricity to customers in South Carolina.  

SCANA has a Zacks Rank #2 (Buy) and has a beta value of 0.21. The stock has a dividend yield of 3.6%. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 15.43, lower than the industry average of 15.85.

Northwestern Corp. (NWE - Free Report) , which conducts its business as NorthWestern Energy, is an investor-owned utility and one of the largest providers of electricity and natural gas in the northwest quadrant of the U.S.

Northwestern Corp has a Zacks Rank #1 (Strong Buy) and has a beta value of 0.43. The stock has a dividend yield of 3.59%. The stock’s estimated growth for the current year is 8%.

WGL Holdings Inc. is a public utility that delivers and sells natural gas as well as other services and products related to energy.

WGL Holdings has a Zacks Rank #2 and has a beta value of 0.58. The stock has a dividend yield of 2.99%. The stock has a PEG ratio of 2.73, lower than the industry average of 3.46.

Atmos Energy Corp. (ATO - Free Report) distributes and sells natural gas to residential, commercial, industrial, agricultural and other customers.

Atmos Energy has a Zacks Rank #2 and has a beta value of 0.42. The stock has a dividend yield of 2.71%. The stock has a PEG ratio of 2.71, lower than the industry average of 3.46. The stock’s estimated growth for the current year is 6.4%.  

Chesapeake Utilities Corp. (CPK - Free Report) is a utility company engaged in natural gas distribution and transmission, propane distribution and marketing and other related businesses

Chesapeake Utilities has a Zacks Rank #2 and has a beta value of 0.37. The stock has a dividend yield of 2.08%. The stock’s estimated growth for the current year is 6.8%.

Want to find the best stocks for 2016? Find out more information about the market-crushing Zacks Top 10 list here >>>

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