7 Utility Stocks to Buy Despite the Heating Crisis


utility stocks - 7 Utility Stocks to Buy Despite the Heating Crisis

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Certainly energy prices are higher this year than last. And that isn’t necessarily good news for utility stocks. But increased demand is always good.

What’s more, utilities have been transitioning from expensive, less efficient fuels to more efficient fuels to run their power plants for years now. That means they’re operating more efficiently.

Many companies have converted from coal to natural gas, and natural gas is abundant in the U.S. While natural gas prices in the U.S. are off their highs (around $3.90/MMbtu), this is still very cheap relative to many import-heavy markets like Europe, China and Japan.

Granted it’s cold comfort for customers to know that while energy prices are high for home and business heating, the utilities have better margins and also have trading desks that can take advantage of a more dynamic energy market. And renewables have also made big strides which help keep prices down.

These utility stocks highlight the strong showing some utilities are making as demand increases.

  • Brookfield Infrastructure Partners (NYSE:BIP)
  • Kenon Holdings (NYSE:KEN)
  • Otter Tail (NASDAQ:OTTR)
  • Exelon (NASDAQ:EXC)
  • Star Group (NYSE:SGU)
  • UGI Corp (NYSE:UGI)
  • Pampa Energia SA (NYSE:PAM)

Utility Stocks to Buy: Brookfield Infrastructure Partners (BIP)

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Structured as a limited partnership, BIP is one of the more interesting ways to approach the utilities sector. As its name implies, BIP is more than just a globally diversified utility company. It also has other infrastructure assets including real estate, telecom infrastructure, renewable energy, ports and others.

BIP is a Canada-based company that have been packaging various investment vehicles since its founding in 1905. BIP is one many sector specific holding companies that the parent company owns.

It’s a good choice for investors that want a broader geographic and corporate footprint than your typical utility provides. Also, its renewable energy assets also mean it has a broader focus than just providing electricity.

BIP stock has gained almost 13% in the past 12 months and still delivers a solid dividend of nearly 3.4%. This stock has a “B” rating in my Portfolio Grader.

Kenon Holdings (KEN)

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Again, while its utility holdings in Israel and the U.S. make up a large part of its business, KEN is more diversified than your typical utility. It also owns a large piece of a global shipping container company as well as a stake in a Chinese electric vehicle company.

Its focus is more about growth and cash flow than just providing utility services. Even its utility operations are solely power generation plants, not the entire network. But its diversification has paid off, especially in the shipping sector. The supply chain crisis means its containers are in high demand for top dollar.

This and its unique asset mix have kept the stock in great demand. KEN is up 22% in the past three months and has gained 57% in the past 12 months. Yet it trades at a current price-to-earnings ratio below 4x and has a massive 10.7% dividend.

This stock has an “A” rating in my Portfolio Grader.

Utility Stocks to Buy: Otter Tail (OTTR)

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Since 1905, OTTR has been a regional utility stock in the lightly populated upper Midwest — Minnesota and the Dakotas. But in the mid-1990s, it diversified and became a two-platform company, moving into metal fabrication, tool and die, as well as pipes and tubing.

Both sectors are now doing well. The metal and pipe sector is a big beneficiary of not only the new infrastructure spending but also the energy boom in the Bakken and other shales in the region. And the utility business has seen more demand from rising populations and increased energy use in the region.

It’s a unique utility and it has a $2.6 billion market cap, so it’s not massive. But it has a reliable 2.5% dividend, and the stock is on a roll, gaining 53% in the past 12 months.

This stock has an “A” rating in my Portfolio Grader.

Exelon (EXC)

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While the name might not be too familiar, EXC is one of the largest utility holding companies in the U.S. It runs a number of utilities in the Mid-Atlantic region as well as Illinois.

It’s likely its subsidiaries are more familiar names — Commonwealth Edison, PECO Energy, Baltimore Gas & Electric, Delmarva Power & Light, Atlantic City Electric and Potomac Electric Power Company (aka, PEPCO). It also owns deregulated energy companies Exelon Generation and Constellation Power.

While its geographic footprint is broad, EXC is one of the more traditional utility stocks most investors imagine when they think of this sector. And its $55 billion market cap certainly places it among the largest utility companies in the U.S.

EXC stock has done well in the past 12 months, gaining almost 32%. That’s not the kind of gain you usually see from these big, conservative firms. But market rotation is certainly moving money into the sector. It has a sturdy 2.7% dividend.

This stock has a “B” rating in my Portfolio Grader.

Utility Stocks to Buy: Star Group (SGU)

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Another subset in the utility stocks sector is natural gas and oil retail and distribution companies. It’s the largest retail distributor of home heating oil in the U.S. They’re the ones that sell liquefied natural gas (LNG) and heating oil to homes and businesses in areas that rely on these sources for climate control and other essential services outside of electricity.

SGU is organized as a limited partnership, which means investors are considered partners in the business. It’s similar to the way real estate investment trusts (REITs) are set up. The structure means that the company must pay its shareholders a cut of net profits, usually in the form of dividends.

These dividends can fluctuate, but they can be higher than average for many of these energy-focused companies. For investors, these are long-term holdings so you can take advantage of the dividends, rather than expecting significant price appreciation.

SGU stock has gained 8% in the past 12 months, but still has a price-to-earnings ratio just above 6x. And its 5.4% dividend creates a solid total return with plenty of upside left. But it’s a small company, with a market cap of just $411 million.

This stock has a “B” rating in my Portfolio Grader.

UGI Corp (UGI)

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If you’re looking for a company similar to SGU, but with far more horsepower and more focused on natural gas, UGI may be the answer. With a $9 billion market cap and broad exposure across Europe and the U.K., UGI is a big LNG player. And as I mentioned before, LNG in Europe is more than 3x more expensive than it is in the U.S. That means margins can be much bigger.

In the U.S., UGI has a few subsidiaries — AmeriGas, UGI Penn Natural Gas and UGI Central Penn Gas. It also has a network of pipelines, storage and distribution assets as well.

LNG will continue to be a growing segment of global energy demand and UGI is well-positioned both here and in Europe to be a significant beneficiary. That’s especially true in Europe as Russia begins to squeeze European nations’ access to its natural gas.

UGI stock has gained 23% in the past 12 months, yet it still has a current P/E below 7x and a nearly 3% dividend.

This stock has a “B” rating in my Portfolio Grader.

Utility Stocks to Buy: Pampa Energia SA (PAM)

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If you’re interested in something more interesting than your typical U.S.-based utility company, then PAM may be on of the utility stocks to add to your list. This Argentina-based utility has its hands in the entire energy sector — electricity to oil and gas.

PAM has a $2 billion market cap, but that makes it a good-sized company in Argentina. Its operations span controlling interests in a number of various companies, from high-voltage transmission lines to natural gas pipelines to oil wells to refineries. It’s assets make it vertically integrated throughout the power grid and energy patch.

But PAM isn’t a dividend stock. It’s a growth play as the Argentine economy revives. As one of the leading infrastructure development companies in the nation, it will benefit from healthier growth.

PAM stock is up more than 46% in the past 12 months, yet it’s still trading at a current P/E just below 4x. This stock has a “B” rating in my Portfolio Grader.

On the date of publication, Louis Navellier has no positions in any stocks in this article. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

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