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May Loses Brexit Vote, Shutdown Prevails: 5 Utilities to Pick

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On Jan 15, the British parliament overwhelmingly rejected prime minister Theresa May’s Brexit deal. Opposition leader Jeremy Corbyn has proposed a motion of no-confidence against her government which will take place on Jan 16. These events have led to confusion about the Brexit process with the EU warning that there is a significant risk of a “no deal” Brexit taking place. 

Meanwhile, the longest ever federal government shutdown in U.S. history has now extended into its 25th day. And no resolution appears to be in sight, with President Trump firm on his call for border wall funding. Democrats, in turn, have refused to cave in to Trump’s demands. Taken together, these events are obscuring the near-term economic outlook and could lead to a spike in market volatility.

Utility stocks have been the biggest sector-wise gainers over the past year with Utilities Select Sector SPDR (XLU) up 4.8% over this period. Their superior dividend yields and steady revenues make them good choices in a tough economic environment. Investing in this class of stocks would make for a smart move right now.

Brexit Deal Fails to Gain Support, May Faces No-Confidence Vote

In a widely expected move, Britain’s House of Commons voted 433-202 against May’s plan. The outcome was widely expected, but still proved damning for the prime minister’s fragile minority government. Minutes after the defeat, May said that it was necessary to determine whether her government still had the support of lawmakers.

Subsequently, the opposition put forward a no-confidence motion, voting on which will take place on Jan 16. Following these events, the EU issued a warning that the risk of a “no deal” Brexit had heightened. In such an event, trade would be disrupted and Britain’s economy and financial markets would have to face severe turbulence. 

Government Shutdown Threatens to Hurt Economy

On Jan 12, the partial government shutdown entered the history books, extending into its 22nd day. Previously, the longest shutdown was the 21-day closure which took place in 1995. The shutdown has now extended into its 25th day and shows no signs of ending any time soon.

While President Trump continues to demand $5.7 billion for a border wall, Democrats are in no mood to give in to his demands. Already, the shutdown has forced 800,000 workers to be furloughed or go without being paid. And the lack of government services is affecting millions of Americans.

Estimates from the Council of Economic Advisers indicate that the shutdown is starting to hurt the economy. Per the council’s chairman Kevin Hassett, the shutdown cuts economic growth by 0.13% for every week that it continues. Private projections also show that that the shutdown has hurt growth and could hasten the arrival of a recession.

Our Choices

The legislative rejection of May’s Brexit plan is likely only the start off Britain’s geopolitical woes. It is also likely to send ripples throughout the global economy in the near future. At this point, May’s government faces an uncertain future. Meanwhile, the U.S. government shutdown shows no signs of ending even as it begins to hurt the economy and may even usher in a recession. 

The above-average dividend yields and steady revenues make this class of stocks great options at a time when a downturn looks near. Adding them to your portfolio would make for a prudent choice. We have narrowed our search to the following stocks based on a good Zacks Rank and other relevant metrics.

ALLETE, Inc. (ALE - Free Report) is an energy company. It has three operating segments, U.S. Water Services, Regulated Operations and ALLETE Clean Energy.

ALLETE’s expected earnings growth for the current year is 5.3%. The Zacks Consensus Estimate for the current year has improved by 0.2% over the last 30 days. The stock has a dividend yield of 3.1%.The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Pinnacle West Capital Corporation (PNW - Free Report) provides electricity services (wholesale or retail) in the state of Arizona through its subsidiaries.

Pinnacle West has a Zacks Rank #2 (Buy). The company has expected earnings growth of 8.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 60 days. The stock has a dividend yield of 3.6%.

CenterPoint Energy, Inc. (CNP - Free Report) is a domestic energy delivery company that provides electric transmission & distribution, natural gas distribution and competitive natural gas sales and services operations.

CenterPoint Energy has a Zacks Rank #2. The company has expected earnings growth of 6% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.3% over the last 30 days. The stock has a dividend yield of 3.8%.

NextEra Energy, Inc. (NEE - Free Report) is a public utility holding company engaged in the generation, transmission, distribution and sale of electric energy.

NextEra has a Zacks Rank #2. The company has expected earnings growth of 8% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.1% over the last 30 days. The stock has a dividend yield of 2.6%.

American Water Works Company, Inc. (AWK - Free Report) provides essential water services to over 15 million customers in 47 states, the District of Columbia and Ontario, Canada.

American Water Works has a Zacks Rank #2. The company has expected earnings growth of 6.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.2% over the last 30 days. The stock has a dividend yield of 2%.

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