In this article we presented the 12 best utility stocks to buy now. You can skip our detailed analysis of the utilities industry and go directly to 5 Best Utilities Stocks to Buy Now.
Utility companies are engaged in some of the most essential services, playing a key role in sustaining the economic activity. The utility industry involves electric power generation and transmission, natural gas distribution, steam supply, water supply and sewage removal. The utilities sector has a high level of involvement with governments, making it suitable for investors who prefer stability, dividends and secular long-term growth. However, amid rapid changes in the energy sector and technological advances, there is a huge potential for growth for utilities stocks today.
Green Energy Revolution: A New Era for Utility Stocks
Deloitte said in its Utilities 2021 outlook that the upcoming Biden Administration could usher in a new era of growth for the utility companies in the U.S., as the new government has plans to achieve net-zero greenhouse gas emissions target by 2050 and invest $2 trillion to achieve this target. The report also said that utility companies could also play a key role in the EV revolution, as governments and consumers will rely on them for charging networks for electric cars. The report said that the Federal Energy Regulatory Commission’s September 2020 ruling enabling the distributed energy resource, or DER, aggregators to compete in all regional organized wholesale electric markets will result in a massive growth of innovative technologies in the utilities sector. These technologies include rooftop solar arrays, EVs, and smart building devices.
According to a report from the Boston Consulting Group, European and North American power and utility companies delivered a median annual total shareholder return, or TSR, of 10.5% for the five years from Jan.1 1, 2015, to Dec. 31, 2019, placing the sector in the middle of the 33 industries analyzed in the report. The report noted that investors in the utility sector are now moving towards attractive, long-term growth catalysts like wind, solar and other renewable energy sources. It also said that companies are moving away from riskier options into regulated businesses, boosting their EBITDA margins and valuation multiples.
The winds of change are sweeping across the utilities sector, and analysts believe that now is the time to invest in best utility stocks to reap big profits in the future.
“Investors have to think about utilities differently. There’s more potential for growth than there has been,” thinks Rob Thummel, senior portfolio manager at Tortoise Capital , which runs the $9.1 million mutual fund Tortoise Energy Evolution Fund (TOPTX).
Like the utility sector, global financial markets are also going through enormous changes. The hedge fund industry’s reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Major utility companies are investing millions to revamp their power generation strategies, digital infrastructure and distribution systems. Minneapolis-based Xcel Energy eyes to cut 80% of its carbon emissions by 2030. The company plans to be totally carbon-free by 2050. American Electric Power has promised to slash its carbon emissions by 80% by 2050.
Without further delay, let's start our list of the 12 best utility stocks to buy now.
Minnesota-based Xcel Energy serves over 3.3 million electric customers and 1.8 million natural gas customers in Minnesota, Michigan, Wisconsin, North Dakota, South Dakota, Colorado, Texas and New Mexico. The company plans to start delivering 100% carbon-free electricity by 2050.
Ken Griffin’s Citadel Investment Group 1.89 million shares of Xcel Energy as of the end of the third quarter, worth $130.58 million. Overall, 21 hedge funds out of the 816 tracked by Insider Monkey held stakes in the company entering the fourth quarter.
Southern Company ranks 11th on the list of 12 best utility stocks to buy now. The company provides gas and electricity to 9 million customers in 6 states. In September 2020, Barclays upgraded Southern (NYSE:SO) to Overweight from Equal-weight. The company beat analysts’ forecasts for its Q3 EPS by $0.01.
As of the end of the September quarter, 25 hedge funds tracked by Insider Monkey held stakes in Southern Company, significantly down from 38 funds a quarter earlier. The net value of these stakes is $305.51 million.
Edison International is the parent company of Southern California Edison, which provides electricity to almost 15 million people. Almost 46% of Southern California Edison’s power comes from clean energy. Since 2016, Southern California Edison has installed about 1,000 charging stations at its Southern and Central California service areas.
A total of 27 hedge funds in Insider Monkey’s database held stakes in Edison International at the end of the third quarter. The total value of these stakes is $1.1 billion.
Illinois-based Exelon ranks 9th in the list of 12 best utility stocks to buy now. The company is the largest operator of nuclear power plants in the U.S. The company owns more than 20 nuclear power plants. For the third quarter, the company crushed analysts’ expectations and also upped its full-year guidance. EPS in the full year is now expected to come in the range of $3.00-$3.20, compared to the previous outlook of $2.80-$3.10 outlook.
John Overdeck And David Siegel’s Two Sigma Advisors is one of the 28 hedge funds tracked by Insider Monkey which had Exelon in their portfolios entering the fourth quarter. The fund owns 6.24 million shares of the company, worth $223.01 million.
8. American Electric Power Company Inc (NASDAQ: AEP)
Ohio-based American Electric delivers electricity to more than 5 million customers in 11 states of the United States. The company has about 38,000 megawatts of generating capacity. In October, the company signed a letter of intent with BQ Energy Development to purchase 100% offtake of the Columbus Solar Park being developed near Columbus, Ohio.
A total of 29 hedge funds tracked by Insider Monkey reported owning shares in American Electric, down from 34 funds a quarter earlier. The net worth of these shares is $431.85 million.
American Water Works ranks 7th on the list of the best utility stocks to buy now. The company has several subsidiaries that manage municipal drinking water and wastewater systems. In December 2020, American Water Works stock was upgraded by BofA to Neutral from Underperform with a price target of $155. The bank said that the company has strong growth opportunities in the green energy space.
A total of 30 hedge funds tracked by Insider Monkey held stakes in American Water Works as of the end of the third quarter, flat from the previous quarter. The net worth of these shares is $675.76 million.
Virginia-based AES generates electric power in about 15 countries. AES is behind sPower, which is one of the largest operators and developers of utility-scale solar in the country. sPower’s operating portfolio includes 1.3 GW worth of solar and wind based properties.
In December 2020, Siemens and AES said the Qatar Investment Authority agreed to invest $125 million for a minority stake in the companies' energy storage Fluence joint venture. The deal valued the venture at $1 billion. Jos Shaver’s Electron Capital Partners owns about 7.8 million shares of AES, worth $141.24 million. Overall, 32 hedge funds tracked by Insider Monkey held stakes in the company, entering the fourth quarter. In a recent article we laid out the bullish case in AES shares. Here is what we said:
The Arlington, Virginia-based global power company – AES – is led by its well-accomplished CEO Andres Gluski, and is a Fortune 500 constituent. As a part of being one of the largest electricity generation and utility companies in the world, AES has partial or full ownership in subsidiaries globally. AES also has a 50% ownership (as a call option holder) in the world’s largest battery storage provider- Fluence. AES is transforming into a market leading clean energy developer. AES looks poised to unlock the hidden value over the next few years. Some of the potential triggers are mentioned below. After a 50% reduction in parent debt ($3 billion), and exit from 18 countries, AES has gone through major restructuring over the past few years. Trading at 12x next year’s earnings vs the 19x industry multiples, AES looks undervalued. The company’s growth outlook of 7-9% through 2022 is based on their 6GW backlog of renewable energy. After Fitch’s upgrade of AES debt, S&P and Moody’s are expected to follow suit, which should reduce the interest costs and further solidify the balance sheet. With thermal power component expected to drop below 30%, AES continues its transformation to clean energy provider. The company stands high chances of meeting the Norges Bank’s ESG criteria. If came to fruition, AES could be part of the world’s largest sovereign wealth fund’s ESG portfolio with a $23 billion already in green utility stocks. That, in turn, would ignite interest among other funds to eye a piece of AES. With a 2.1GW under its belt, Fluence has more GW deployed than Tesla and is expected to dethrone the latter as the world’s largest energy storage provider. An IPO of Fluence – a 50/50 JV with Siemens – around 2022 could add $5 to the stock valuation. Depending upon the growth of backlog both at AES and Fluence, the combined entity’s 2022 price target could range between $32 (60%) and $48 (152%).
