SPECIAL REPORT The Top 7 Stocks for 2024

7 Utility Stocks to Help You Power Through a Downturn


  • Southern Company (SO): SO is the second-largest utility firm in the U.S., serving 9 million customers in six states, with a forward yield of 4.16%.
  • Duke Energy (DUK): DUK is an electric power and natural gas holding company covering several states, with a forward yield of 4.61%.
  • FirstEnergy (FE): FE specializes in electric services, serving 6 million customers and offering a forward yield of 4.61%.
  • Read more on how to weather a possible economic storm with these utility stocks to buy for a down market.
utility stocks - 7 Utility Stocks to Help You Power Through a Downturn

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With the new year presenting uncertainties, the bullish case for utility stocks to buy for a down market has been rising higher. It’s just that Wall Street doesn’t quite realize it yet.

To be sure, in a post-pandemic ecosystem that birthed meme trades and the dramatic revitalization of cryptocurrencies, the concept of utility stocks to buy seems grossly regressive. Let’s face it – while the underlying processes and technologies have changed, the core premise has not. Also, the reality is that the utilities sector offers a boring profile.

Granted, if we had high confidence that the market will enter a northbound cycle, utility stocks may not be ideal. However, we simply don’t have that confidence. Sure, the third-quarter U.S. GDP print came in hotter than expected. However, per CNBC, the bond market has been sending a strong signal that a recession may be on the horizon.

If so, boring is good, which may benefit the below utility stocks to buy for a down market.

Southern Company (SO)

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Headquartered in Atlanta, Georgia, Southern Company (NYSE:SO) is a major candidate for utility stocks to buy that are tied to the gas and electric subsegment. According to its public profile, Southern represents the second-largest utility firm in the U.S. in terms of customer base. Through its subsidiaries, the enterprise serves 9 million customers in six states.

Fundamentally, Southern enjoys a major advantage because of its coverage map. With millennials – who represent the largest demographic in the workforce – moving to Atlanta, Southern operates where the money will be. That should give investors confidence in the long-term trajectory of SO stock, which admittedly is down more than 6% since the January opener.

In terms of passive income, Southern offers a forward yield of 4.16%. That runs higher than the sector average 3.75%. However, the payout ratio is a bit toasty at 69.56%.

Overall, SO should intrigue as one of the utility stocks to buy for a down market. Analysts rate it a moderate buy with a $71.17 price target, implying about 6% growth.

Duke Energy (DUK)

The logo for Duke Energy (DUK) is seen on a sign at one of the company's offices.
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An electric power and natural gas holding company, Duke Energy (NYSE:DUK) isn’t the most exciting candidate for utility stocks. Indeed, DUK might even repel some investors who are typically attracted to the sector. With DUK down more than 14% since the beginning of the year, it’s not immediately making a great case for itself.

At the same time, the fundamentals matter. Headquartered in Charlotte, North Carolina, Duke covers the Carolinas, along with Florida, Indiana, Ohio, and Kentucky. Per its website, the company collectively owns 50,000 megawatts (MW) of energy capacity. With millennials also migrating to these states – generally for cost-of-living reasons – Duke enjoys a geographic advantage.

Financially, as with other utility stocks to buy, Duke doesn’t offer the most compelling print. However, it’s consistently profitable, which brings up the topic of dividends. Currently, the company offers a forward yield of 4.61%. Analysts peg DUK a moderate buy with a $96.36 price target, implying over 8% upside.

FirstEnergy (FE)

A concept image of electricity flowing between two disconnected electric cables.
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Specializing in electric services, FirstEnergy (NYSE:FE) – which is headquartered in Akron, Ohio – is involved in the resource’s distribution, transmission, and generation. Further, it focuses on energy management and other energy-related services. Per its public profile, FirstEnergy represents one of the biggest utility stocks based on the underlying enterprise serving six million customers.

As with other players in this space, Wall Street presently doesn’t see much potential in FE. Since the beginning of the year, shares dropped more than 15% in equity value. However, it’s possible that FE hit a recent bottom on Oct. 2. Since then, the security has been generally marching higher.

For full disclosure, FirstEnergy encountered rough waters in 2016 and 2017, posting sharp net losses in those years. However, it’s returned to profitability since the end of 2017. As well, it offers a forward yield of 4.61%. Analysts rate shares a moderate buy with a $39.36 price target, projecting almost 11% growth.

Exelon (EXC)

The logo for Exelon (EXC) is visible at the top of an office building.
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Headquartered in Chicago, Illinois, Exelon (NASDAQ:EXC) is the largest electric parent company in the U.S. by revenue, per its public profile. Further, the company represents the largest regulated electric utility in the nation with approximately 10 million customers. Still, the impressive footprint hasn’t convinced Wall Street to take a stab. Since the January opener, EXC dipped almost 10%.

As with other utility stocks to buy for a down market, Exelon may benefit from its geographic positioning. For example, one of its regulated utilities is PECO Energy Company, which operates in Pennsylvania. Subsequently, many younger folks – millennials and members of Generation X – are moving to the Keystone State.

To be fair, Exelon doesn’t particularly arouse investor curiosity with its financials. However, since the entity split its utility and energy generation business into two separate companies, Exelon’s revenue has been robustly marching higher. Also, it offers a forward yield of 3.7%.

Analysts peg EXC a consensus strong buy with a $43.22 target, implying 11% upside.

Sempra (SRE)

The logo for Sempra (SRE) is seen at the top of an office building.
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Having firsthand experience with Sempra (NYSE:SRE), I can tell you that it’s not the most popular idea for utility stocks to buy, at least from the consumer’s perspective. Over the past several years, the company – like other utilities – has attracted criticism. Nevertheless, for purely cynical reasons, SRE offers a great canvas if you anticipate an incoming downcycle.

In fairness, Wall Street also doesn’t get the narrative, at least right now. Since the January opener, SRE slipped nearly 9%. However, it’s possible that SRE may have inked a bottom on Oct. 2. Since then, the bulls have bidding shares up. Ahead of significant uncertainties in the market and the broader economy, Sempra’s predictable business should offer some comfort.

Fundamentally, Sempra’s Southern California market provides a fortress for stakeholders. As expected, its natural monopoly facilitates consistent profitability. Also, the company offers a forward yield of 3.4%, along with a reasonable 49.75% payout ratio.

Analysts rate SRE a moderate buy with an $80.80 price target, projecting over 15% growth.

American Water Works (AWK)

A zoomed in photo of a drop of water hitting a container of water's surface.
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A public utility specializing in water and wastewater services, American Water Works (NYSE:AWK) commands a massive footprint. Per its public profile, the company offers its core services to approximately 1,700 communities in 14 states, serving a population of approximately 14 million via 3.4 million customer connections. However, investors must be warned: it’s one of the riskiest utility stocks to buy.

Since the start of the year, AWK gave up almost 24% of equity value. To be sure, in the trailing month, this negative acceleration slowed to roughly 2% down. Still, I’m not sure if this is merely a respite to further volatility or if shares will bounce higher. Those who decide to place a wager will be banking on its indelible business and the natural monopoly narrative.

Financially, several areas of the print could use improvement. That said, American Water unsurprisingly features a strong net margin of 22.09%. This stat beats out 87.8% of sector rivals. Also, it pays a forward yield of 2.41%, though this is admittedly modest.

Overall, analyst peg AWK a moderate buy with a $141 price target, implying 20% upside.

Essential Utilities (WTRG)

A photo of a woman holding a glass of water.
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Another water-related public utility firm, Essential Utilities (NYSE:WTRG) focuses on providing drinking water and wastewater treatment infrastructure and services. Obviously, water represents one of this planet’s most precious resource so Essential benefits from a permanently relevant business. However, it must be stated that WTRG is one of the riskiest ideas among utility stocks. Since the January opener, shares slipped almost 31%.

Worse yet, the broader technical profile doesn’t necessarily suggest that a bottom is in. Over the past five years, WTRG only gained just under 2%. It’s possible that the current slowdown in negative acceleration is just a respite prior to further downside. Still, the other angle could be that shares are heavily de-risked.

Despite the troubles that WTRG incurred in the charts, Essential posts a robust net margin of 20.25%. Also, it posted 10 years of profitability over the past decade, facilitating the company’s forward yield of 3.67%. Finally, analysts rate WTRG a unanimous strong buy with a $48.75 price target, projecting almost 46% growth.

On the date of publication, Josh Enomoto 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.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

Article printed from InvestorPlace Media, https://investorplace.com/2023/11/7-utility-stocks-to-help-you-power-through-downturn/.

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