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5 Utility Stocks to Buy on Rising Uncertainty

Key indexes experienced their worst weekly loss since early February on Apr 8. Losses were led by consumer discretionary and financial stocks and were caused by multiple factors. Uncertainty over rate hikes, weaknesses in the global economy and mixed domestic data were some of these. But a lackluster earnings outlook for the first quarter was the primary factor dampening investor sentiment.

More importantly, the fall and rise of stocks continue to depend upon the fate of oil prices to a large extent. This is why defensive choices like utilities have again acquired special significance. It may be prudent to picks stocks from this sector in order to protect yourself from headwinds which may buffet markets again.

Headwinds Afflicting Markets

Weakness in Europe and Japan are the latest worries weighing down investor sentiment. This was the primary reason for last week’s losses. The divergent views of Fed officials on the path of rate hikes also caused some uncertainty but the Fed Chair has once again reassured investors that rates will be hiked only gradually. A weak earnings outlook may also weigh down indices unless bellwether stocks deliver spectacular earnings.

But what continues to be particularly troublesome is the extent to which crude prices affect stocks on a regular basis. Even if stocks do not rise and fall in tandem with crude prices, they seem to have a major impact on markets on every trading day. This is particularly worrisome, given that at this point the chances of talks between major oil exporting countries on a production freeze still looks uncertain.

Utilities Re-emerge as Safe Haven

At the beginning of the year, utilities had emerged as the natural choice for investors as markets caved in due to a slump in oil prices and concerns about China’s economy. This state of affairs continued till the middle of February until oil prices recovered. As a result, the Utilities Select Sector SPDR XLU is up 12.4%, the highest gainer among the S&P 500 sectors. The sector has continued to gain, clocking up a more than 1% gain over the last month.

At this point, the attractiveness of the sector is set to increase. The Fed Chair has indicated that rates will continue to be low which is advantageous for utilities since they have large debt servicing obligations. Additionally, they offer stable dividends over the long term as well as capital growth. They are also low beta stocks. Beta coefficient measures the extent to which a stock may be affected by market conditions. Low correlation stocks provide protection during turbulent times as they are less prone to day-to-day fluctuations.

Our Choices

It is important to pick stocks which are a safe bet as the markets may soon experience some turbulence. With their steady dividend payouts and low beta coefficient, utilities seem to be the natural choice.

This is why you must add stocks from this sector to your portfolio. We have narrowed down our search based on a good Zacks Rank and other relevant metrics.

CenterPoint Energy, Inc. CNP 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 (Buy), a dividend yield of 4.9% and a beta value of 0.41. The stock’s projected growth for the current year is 5.7%. Its earnings estimate for the current year has improved by 2.1% over the last 30 days.

CMS Energy Corp. CMS is the holding company of Consumers Energy Company and CMS Enterprises Company.

CMS Energy has a Zacks Rank #2, a dividend yield of 3% and a beta value of 0.12.  The stock’s projected growth for the current year is 6.5%. Its earnings estimate for the current year has improved by 0.4% over the last 30 days.

Cleco Corporation CNL is a holding company of Cleco Power LLC, which generates, transmits, distributes and sells electricity.

Cleco has a Zacks Rank #2, a dividend yield of 2.9% and a beta value of 0.53. The stock’s projected growth for the current year is 9.9%. Its earnings estimate for the current year has improved by 0.7% over the last 30 days.

PPL Corporation PPL is a diversified utility holding company. Currently, the company serves 10.5 million utility customers in the U.S. and the UK.

PPL Corp has a Zacks Rank #2, a dividend yield of 4.1% and a beta value of 0.31. The stock’s projected growth for the current year is 5.7%. Its earnings estimate for the current year has improved by 1.4% over the last 30 days.

ONE Gas, Inc. OGS is a natural gas local distribution company which operates primarily in Oklahoma, Kansas and Texas.

ONE Gas has a Zacks Rank #2, a dividend yield of 2.3% and a beta value of 0.17. The stock’s projected growth for the current year is 12.4%. Its earnings estimate for the current year has improved by 6.5% over the last 30 days.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
CLECO CORP (CNL): Free Stock Analysis Report
 
CMS ENERGY (CMS): Free Stock Analysis Report
 
CENTERPOINT EGY (CNP): Free Stock Analysis Report
 
PPL CORP (PPL): Free Stock Analysis Report
 
ONE GAS INC (OGS): Free Stock Analysis Report
 
SPDR-UTIL SELS (XLU): ETF Research Reports
 
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