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Market Jitters Refuse to Die Down: 5 Utilities Picks

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After registering record declines on Oct 10, all the three key U.S. indexes witnessed further losses on Oct 11. Higher interest rates, increasing bond yields and renewed fears of a trade war may find investors scurrying toward safe-haven sectors that have already emerged as preferred investments.

One of the most-popular, safe-haven sectors is utilities. This sector comprises companies that provide telephone, gas, water and electricity services. In this context, equity-focused investors looking for stable dividend and interest income can invest in utilities.

Indexes Are In Choppy Ground

The Dow 30 declined by about 1,400 points in the last two trading days. The Nasdaq not only entered correction territory during the day, but also closed the day 9.6% lower than its Aug 29 record. Moreover, the S&P 500 ended in the red for the sixth straight trading day. The broader index finished lower than its 200-day moving average, its first time since April.

Markets are on volatile ground, as evident from the CBOE Volatility Index (VIX), which increased 2 points to 24.98 on Oct 11, the highest settlement since Feb 15. Any reading above the 20 mark indicates a bearish outlook in the equity market.

Rising Rates Spook Investors

A sudden increase in long-term bond yields weigh on the equity market as a rapid increase in bond yields in turn will boost borrowing costs. Earlier, this week, yields on the 10-year Treasury note was at 3.26%, its highest since April 2011. Although, on Oct 11, the 10-year Treasury note decreased by 6 points to 3.158%, it was higher than last month’s 2.979%.

Additionally, the Fed has already raised its federal funds rate for the third time this year. The Fed’s aggressive rate hike approach invited criticism from President Trump, with the President saying that “the Fed is making a mistake.” A high interest rate environment along with continued trade war tensions between the United States and China weighed on investor sentiment and resulted in this two-day carnage.

Why Buy Utilities Stocks?

Among the safe-haven sectors, utilities could be good investments as these generate solid income for their investors.  Traditionally, this segment offers protection against a downward trending market, or when there is world strife that will impact the economy globally. 

Investors with a conservative mindset looking for stable current income would do well to consider utilities. They are used as defensive instruments, which protect investments during a market downturn. This is because demand for essential services such as those provided by utilities remains unchanged even during difficult times.

Moreover, most of the utilities maintain a high level of monopoly across their geographic markets. This in turn helps these companies to retain their profitability and continued existence. Constant demand for utilities-related services ensures long-term sustainability for these stocks.

Buy These 5 Utility Stocks

Rising bond yields, increasing interest rates and trade war fears make utility stocks a good investment. The Utilities Select Sector SPDR (XLU) has advanced 0.4% in the last five trading days, becoming the only S&P 500 sector to end in the green over this period.

We have selected five stocks that are expected to emerge relatively unscathed from the bloodbath. These stocks also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Portland General Electric Company (POR - Free Report) is an integrated electric utility company.  It is involved in the generation, wholesale purchase, transmission, distribution, and retail sale of electricity in the state of Oregon.

This Portland-based company has a Zacks Rank #1. It has expected earnings growth of 2.51% for the current year. The Zacks Consensus Estimate for the current year has improved 0.4% over the last 60 days. Portland General Electric has a dividend yield of 3.19%.

Ameren Corporation (AEE - Free Report) is a public utility holding company in the United States. It operates through four segments, Ameren Missouri, Ameren Illinois Electric Distribution, Ameren Illinois Natural Gas, and Ameren Transmission.

The company is based in St. Louis, MO, and has a Zacks Rank #2. It has expected earnings growth of 14.78% for the current year. The Zacks Consensus Estimate for the current year has improved 1.3% over the last 60 days. Ameren has a dividend yield of 2.78%.

Southwest Gas Holdings, Inc. (SWX - Free Report) is a purchaser, distributor and transporter of natural gas in Arizona, Nevada, and California. The utility company operates through Natural Gas Operations and Construction Services segments.

The company is based in Las Vegas, NV, and has a Zacks Rank #2. It has expected earnings growth of 3.45% for the current year. The Zacks Consensus Estimate for the current year has improved 2.2% over the last 60 days. Southwest Gas Holdings has a dividend yield of 2.55%.

ALLETE, Inc. (ALE - Free Report) is an energy company. This utility company operates through three segments, Regulated Operations, ALLETE Clean Energy, and U.S. Water Services.

The company is based Duluth, MN, and has a Zacks Rank #2. It has expected earnings growth of 5.12% for the current year. The Zacks Consensus Estimate for the current year has improved 0.3% over the last 60 days. ALLETE has a dividend yield of 2.89%.

Xcel Energy Inc. (XEL - Free Report) is involved mainly in the generation, purchase, transmission, distribution, and sale of electricity in the United States. The company operates through Regulated Electric Utility, Regulated Natural Gas Utility and All Other segments.

The company is based Minneapolis, MN, and has a Zacks Rank #2. It has expected earnings growth of 7.28% for the current year. The Zacks Consensus Estimate for the current year has improved 0.4% over the last 60 days. Xcel Energy has a dividend yield of 3.11%.

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