Yahoo Finance 4 Utility Stocks to Buy as Recession Fear Grips Markets
U.S. President Joe Biden and House Republicans reached a deal to raise the government debt ceiling on Sunday, thus avoiding a major crisis. The expectation was high among investors about the possible result, which sent stocks on a rally.
However, Friday’s rally was just one of the few good days for the markets in recent times. Wall Street has mostly remained volatile through May, as fears of a recession and the Fed’s future course of action on its interest rate hike policy have raised concerns among market participants.
The volatility can even escalate as fresh data shows that inflation once again rose in April, which could prompt the Fed to continue raising interest rates. It would thus be wise to invest in defensive stocks like utilities with a favorable Zacks Rank that are likely to strengthen one’s portfolio.
Inflation and Personal Spending Surges
The Commerce Department reported on May 26 that the personal consumption expenditure (PCE) index, the Fed’s preferred inflation gauge, rose 0.4% in April after increasing 0.1% in March. Year over year, the PCE index climbed 4.4% in April after increasing 4.2% in March.
Core PCE, which excluded the volatile food and energy costs, advanced 0.4% month over month in April and 4.7% from April 2022.
Although inflation has slowed since peaking a year ago, solid household demand runs the risk of keeping pricing pressures high.
This has left the Fed in a challenging situation regarding whether or not to continue with its interest rate hikes. The Fed hiked interest rates by 25 basis points in May to a range of 5-5.25%.
Investors have been hoping that the Fed could finally pause hiking interest rates after increasing rates for 10 consecutive times over the past year. However, that may not be the case. The fresh inflation data might compel the Fed to go ahead with further rate hikes when officials meet in June.
Market participants are yet to get a clear picture of the Fed’s future course of action on its monetary policy as officials in its May meeting said that the central bank would decide based on data that comes in.
Also, separate data showed that consumer spending increased 0.8% in April after advancing a meager 0.1% in March. This means higher prices may not impact consumers, and inflation may remain elevated.
Further rate hikes will make borrowing expensive, which could now push the economy into a recession.
Given this situation, it will be wise to invest in utility stocks. The utilities sector is fundamentally sound and mature, given that demand for these services is frequently resistant to changes in the economic cycle. These companies constantly offer in-demand services, including telecommunications, energy, gas and water.
This indicates that adding companies in the utility basket frequently boosts a portfolio's resilience in a volatile market environment. Also, the sector is known for its stability and transparency of its financial flows and profitability.
Additionally, the majority of utilities are low-beta stocks (beta > 0 but 1). The best course of action in this circumstance may be to invest in low-beta equities with a high dividend yield and a good Zacks Rank.
Our Picks
We have narrowed our search to four low-beta utility stocks that are regular dividend payers. These stocks have seen positive earnings estimate revisions within the last 60 days. Each of our picks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Consolidated Edison, Inc. ED is a diversified utility holding company, with subsidiaries engaged in both regulated and unregulated businesses. ED’s regulated businesses operate through its subsidiaries – Consolidated Edison Company of New York, Orange and Rockland Utilities, Con Edison Clean Energy Businesses, Inc. and Con Edison Transmission, Inc.
Consolidated Edison has an expected earnings growth rate of 6.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last 60 days. ED presently carries a Zacks Rank #2. Consolidated Edisonhas a beta of 0.37 and a current dividend yield of 3.50%.
Atmos Energy Corporation ATO, along with its subsidiaries, is engaged in the regulated natural gas distribution and storage business. ATO serves nearly 3.4 million customers in more than 1,400 communities in eight states, from the Blue Ridge Mountains in the East to the Rocky Mountains in the West.
Atmos Energy Corporation has an expected earnings growth rate of 7.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the last 60 days. ATO presently has a Zacks Rank #2. Atmos Energy has a beta of 0.62 and a current dividend yield of 2.60%.
New Jersey Resources Corporation NJR is an energy services holding company, which, through its subsidiaries, provides safe and reliable natural gas and clean energy services, including transportation, distribution, asset management and home services. NJR operates through four segments: Natural Gas Distribution, Clean Energy Ventures, Energy Services, and Storage and Transportation.
New Jersey Resources has an expected earnings growth rate of 5.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days. NJR presently carries a Zacks Rank #2. New Jersey Resourceshas a beta of 0.65 and a current dividend yield of 3.19%.
Global Water Resources, Inc. GWRS is a water resource management company. GWRS owns and operates regulated water, wastewater and recycled water utilities.
Global Water Resources has an expected earnings growth rate of 29.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 24% over the last 60 days. GWRS presently has a Zacks Rank #2. Global Water Resources has a beta of 0.73 and a current dividend yield of 2.62%.
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Consolidated Edison Inc (ED) : Free Stock Analysis Report
Atmos Energy Corporation (ATO) : Free Stock Analysis Report
NewJersey Resources Corporation (NJR) : Free Stock Analysis Report
Global Water Resources, Inc. (GWRS) : Free Stock Analysis Report
