SPECIAL REPORT The Top 7 Stocks for 2024

Q4 Stock Predictions: 3 Utility Stocks Ready to Roar Into 2024


  • Utilities Stocks are Underpriced and a Great Strategic Investment All-Around 
  • American Water Works (AWK): Share price upside, dividends and water scarcity make AWK a great pick. 
  • Sempra (SRE): Run through the math related to Sempra and it’s a clear buy. 
  • Edison International (EIX): Edison’s earnings growth is rock-steady and that will keep it steady. 
utility Stocks - Q4 Stock Predictions: 3 Utility Stocks Ready to Roar Into 2024

Source: Pand P Studio / Shutterstock.com

Investors really should take a hard look at utilities stocks at the moment. Their prices are falling because bond yields are very high. It’s all about income. Bonds provide risk-free income for investors willing to park their money for a given time frame. Utility stocks are normally one of the go-to equity sectors for income seekers. They pay healthy dividends that are very reliable. 

However, they’re not as reliable as bonds and with yields approaching 5% utilities stocks have begun to pale. As a result, they’ve become cheaper which should draw the interest of investors willing to take a slight amount of risk. That’s right, utilities stocks are now riskier than they’ve been in some time. Risk equals reward but these companies aren’t risky in the general sense of the word. 

So here are the best utility stocks to buy.

American Water Works (AWK) 

Flooded quarry for limestone mining. Turquoise water. White beaches. Water stocks.
Source: Klintsou Ihar / Shutterstock.com

American Water Works (NYSE:AWK) is cheaper than it has been since the stock last traded below $120 in 2019. With the exception of the onset of the pandemic, it hasn’t been cheaper since then. 

The utility company provides water and wastewater services to 14 states and 18 military installations. It’s essentially a water utility but also provides long-term contracted services on U.S. military bases. 

Aside from its current price, there are other reasons to be interested in American Water Works. There’s a clear opportunity in water in general as an asset for investment. Water scarcity is a real issue and that simply bodes well for the firm in general. 

Beyond those factors, there’s a solid fundamental case for AWK stock. Revenues increased by 14.4% during the first half of 2023 and earnings jumped as a consequence. AWK shares include a dividend. It isn’t substantial with a forward yield of 2.3% but it is reliable and when investors realize how much the shares are undervalued the extra 2.3% return really looks attractive. 

Sempra (SRE) 

A photo of a paper with a chart and the word "Dividends" written on it, with a pen and calculator resting on top of it.
Source: jittawit21/Shutterstock.com

Sempra (NYSE:SRE) does include a higher-yielding dividend at 3.67% currently. That’s a higher percentage enticement than a lot of utility stocks pay and underscores one of the best reasons to consider the San Diego area public firm. 

Sempra’s dividend is reliable, having last been reduced in 2000. Let’s run through some quick math here to give an idea about the potential of SRE shares. It trades at $64 and carries an average target price of $84. Annual dividends amount to $2.40. Thus, we’re talking about 35% expected upside as a ballpark figure over the next year. 

Assume things get worse economically. That should make utilities firms like Sempra more appealing to investors. Assume the opposite and that Sempra’s price remains flat. Returns would then be 3.67% from dividends alone. In that case, just hold longer because utilities are like small monopolies that simply move up over time. Remember, though, that’s not the base case scenario. 

Edison International (EIX)

Utilities stocks: a stock image of light fixtures; one lightbulb is lit up
Source: Shutterstock

It’s relatively easy to calculate similar returns for Edison International (NYSE:EIX) stock. I won’t bore you with the calculations, instead, I’ll just give you the number: 25%. That makes Edison International less attractive than Sempra but attractive nonetheless. 

The best utilities have provided far lower returns than 25% on an annualized basis over the past decade. Even a 20% return over a year would be quite exceptional. That’s exactly what the sector is offering this year. It will remain among the most reliable this year, next year, and beyond. 

Edison International generates and distributes electricity. That means it’s part energy company and part utility company. Many utility firms simply provide the infrastructure through which energy is delivered. Edison produces the energy and sends it to consumers and businesses. 

The company looks safe. Edison International reaffirmed earnings guidance in late July and expects its earnings to grow by between 5-7% through 2028. That should translate to steady price appreciation in its shares that will help its price to rebound to levels that Wall Street expects. 

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


Article printed from InvestorPlace Media, https://investorplace.com/2023/10/q4-stock-predictions-3-utility-stocks-ready-to-roar-into-2024/.

©2024 InvestorPlace Media, LLC