In this article, we discuss 10 best electric utility stocks to invest in.
Utilities stocks are outperforming the broader market by over 30 percentage points heading into the fourth quarter of 2022. If they continue moving forward with that momentum, utilities would outperform the market by the highest margin since 2000. Absolute returns have been resilient as well. Utilities and energy are the only two sectors with positive year-to-date gains. Utilities have benefited as the market faces recessionary crises, which was also the case during the 2001 and the 2007-2009 recessions.
The electric utility industry is pressured by the public, utility commissions, social activists, and the federal government to lower carbon emissions to 50% of the 2005 levels by 2030, and to achieve net zero carbon by 2050. There is a significant number of firms who are willing to try this cleaner approach to electricity generation, and some companies are sure they can achieve those targets. CPS Energy President Rudy Garza told Forbes on October 18:
“As an evolving utility and industry in transition, we see natural gas as a well-established transition fuel that we can use to maintain near-term generation reliability and gives us time to develop and integrate emerging technologies, including the conversion of natural gas generation to operate on hydrogen fuel, to achieve our goals under the City of San Antonio’s Climate Action and Adaptation Plan.”
There are different estimates about the growth in future electricity demand, but several studies back a general consensus that demand could double by 2050. Although measures to tame inflation through rate hikes have impacted utilities in the third quarter, the sector remains one of the historically best-performing S&P 500 segments. To play the boom in utilities, some of the best stocks to consider include NextEra Energy, Inc. (NYSE:NEE), American Electric Power Company, Inc. (NASDAQ:AEP), and Duke Energy Corporation (NYSE:DUK).
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Our Methodology
We selected the following electric utility stocks based on positive analyst coverage, strong business fundamentals, and future growth prospects. We have assessed the hedge fund sentiment from Insider Monkey’s database of 895 elite hedge funds tracked as of the end of the second quarter of 2022.
Best Electric Utility Stocks To Invest In
10. Evergy, Inc. (NYSE:EVRG)
Number of Hedge Fund Holders: 22
Evergy, Inc. (NYSE:EVRG) is a Missouri-based company engaged in the generation, transmission, distribution, and sale of electricity in Kansas and Missouri. Evergy, Inc. generates electricity through coal, hydroelectric, landfill gas, uranium, natural gas, and oil sources, as well as solar, wind, and other renewable sources. In early September, BofA categorized Evergy, Inc. as one of the high quality dividend stocks with an above-market and secure dividend yield.
On October 12, Credit Suisse analyst Nicholas Campanella maintained an Outperform rating on Evergy, Inc. but trimmed the price target on the stock to $61 from $68 ahead of Q3 results. The analyst expects management to reiterate its full year 2022 EPS guidance range of $3.43-$3.63, with the potential to achieve the high end of the range. Although the analyst acknowledged some financing pressures, he still sees Evergy, Inc.’s 6%-8% EPS CAGR as attainable.
According to Insider Monkey’s data, 22 hedge funds were long Evergy, Inc. at the end of the second quarter of 2022, compared to 23 funds in the prior quarter. Ken Griffin’s Citadel Investment Group is the leading position holder in the company, with 1.60 million shares worth $104.5 million.
In addition to NextEra Energy, Inc., American Electric Power Company, Inc., and Duke Energy Corporation, Evergy, Inc. is one of the best utility stocks to consider in the current market backdrop.
9. Ameren Corporation (NYSE:AEE)
Number of Hedge Fund Holders: 23
Ameren Corporation (NYSE:AEE) was founded in 1881 and is headquartered in St. Louis, Missouri. It operates as a public utility holding company, engaged in the rate-regulated electric generation, transmission, and distribution activities. Ameren Corporation has four segments – Ameren Missouri, Ameren Illinois Electric Distribution, Ameren Illinois Natural Gas, and Ameren Transmission.
On October 14, Ameren Corporation declared a quarterly dividend of $0.59 per share, in line with previous. The dividend is distributable on December 30, to shareholders of record on December 7. Ameren Corporation delivers a dividend yield of 3.03% as of October 24.
Guggenheim analyst Shahriar Pourreza reiterated a Buy recommendation on Ameren Corporation but slashed the price target on the stock to $84 from $99 on October 24. The analyst updated select estimates ahead of Q3 earnings season in the Power and Utilities group to factor in “known and measurable year-over-year items,” to adjust for seasonality, and to re-mark to the latest commodity curves.
According to Insider Monkey’s second quarter database, 23 hedge funds held stakes worth $429.5 million in Ameren Corporation, compared to 28 funds in the prior quarter worth $561 million.
8. Xcel Energy Inc. (NASDAQ:XEL)
Number of Hedge Fund Holders: 26
Xcel Energy Inc. (NASDAQ:XEL) is a Minnesota-based company that generates, purchases, transmits, distributes, and sells electricity. The company generates electricity through coal, nuclear, natural gas, hydroelectric, solar, biomass, oil, wood, and wind energy sources. Xcel Energy Inc. paid a $0.4875 per share quarterly dividend to shareholders on October 20. With a dividend yield of 3.17% as of October 24, Xcel Energy Inc. is one of the best utility stocks to invest in.
Wolfe Research analyst Steve Fleishman on October 20 upgraded Xcel Energy Inc. to Outperform from Peer Perform with a $69 price target, calling it “a high quality utility trading at an attractive relative value.” Xcel Energy Inc. also has short-term catalysts with its Q3 capex boost soon and a likely settlement in a primary Minnesota rate case before December, the analyst told investors.
According to Insider Monkey’s second quarter database, Greg Poole’s Echo Street Capital Management is the leading position holder in Xcel Energy Inc., with 1.7 million shares worth $122.5 million.
Aristotle Capital Management mentioned Xcel Energy Inc. in its Q2 2022 investor letter. Here is what the fund said:
“Xcel Energy owns and operates four utilities serving 3.7 million electric customers and 2.1 million natural gas customers in eight states. Headquartered in Minneapolis, Minnesota, the firm generates $11.5 billion in annual revenue and owns infrastructure that ranges from nuclear power plants to wind farms.
The company has been a leader in renewable energy development among regulated utilities. At the end of 2020, 47% of the energy Xcel produced came from carbon-free sources, making it one of the foremost wind producers and renewable energy providers in the U.S. It was also an early mover to announce (in December 2018) a 100% carbon free goal by 2050. The company plans to invest $26 billion in 2022-26, much of it going to renewable energy projects and electric grid infrastructure to support clean energy. (Click here to read full text)
7. Edison International (NYSE:EIX)
Number of Hedge Fund Holders: 26
Edison International (NYSE:EIX) was founded in 1886 and is headquartered in Rosemead, California. The company generates and distributes electric power, serving about 15 million residential, commercial, industrial, public authorities, and agricultural customers across California. Edison International is one of the premier utility stocks to invest in.
On August 25, Edison International declared a quarterly dividend of $0.70 per share, in line with previous. The dividend is payable on October 31, to shareholders of record on September 30. The company delivers a dividend yield of 5.02% as of October 24.
Guggenheim analyst Shahriar Pourreza on October 24 reaffirmed a Buy rating on Edison International but reduced the price target on the shares to $66 from $82. The analyst refreshed select estimates ahead of Q3 earnings season from the Power and Utilities sector but also trimmed the baseline utility valuation, primarily driven by a sharp rise in interest rates and forward yield expectations.
Among the hedge funds tracked by Insider Monkey, Richard S. Pzena’s Pzena Investment Management held the leading stake in the company, comprising nearly 14 million shares worth about $883 million. Overall, 26 hedge funds were bullish on the stock at the end of the second quarter of 2022.
Here is what ClearBridge Investments Large Cap Value Strategy has to say about Edison International in its Q4 2021 investor letter:
“Defensive sectors such as utilities underperformed the broader market, with our California-based utilities, Edison International, generating modestly below-sector returns on continuing wildfire concerns, despite significantly improved financial exposure due to the 2019 legislation AB 1054. The legislation was a major positive step toward reducing wildfire risk to California public utilities, which we expect to be reflected in improved valuations over time.”
6. DTE Energy Company (NYSE:DTE)
Number of Hedge Fund Holders: 29
DTE Energy Company (NYSE:DTE) is headquartered in Detroit, Michigan, and the utility firm operates through Electric, Gas, Power and Industrial Projects, and Energy Trading segments. On October 19, DTE Energy Company and 7-Eleven announced 7-Eleven’s enrollment in MIGreenPower, DTE Energy Company’s voluntary renewable energy program. The enrollment will allow 7-Eleven to get 100% renewable energy for all 160 of its southeast Michigan locations for 20 years starting in 2025.
Mizuho analyst Anthony Crowdell on October 18 maintained a Buy rating on DTE Energy Company but lowered the price target on the shares to $115 from $130 ahead of the Q3 results. The analyst trimmed the target to account for the present market multiples.
According to Insider Monkey’s Q2 data, 29 hedge funds were long DTE Energy Company, compared to 28 funds in the last quarter. The collective stakes owned by elite funds increased to $550.5 million in Q2 from $482.2 million in Q1 2022. Israel Englander’s Millennium Management is the largest position holder in the company, with 987,487 shares worth over $125 million.
Like NextEra Energy, Inc., American Electric Power Company, Inc., and Duke Energy Corporation, elite investors are bullish on DTE Energy Company as one of the best plays in the utilities sector.
5. Duke Energy Corporation (NYSE:DUK)
Number of Hedge Fund Holders: 30
Duke Energy Corporation is a North Carolina-based energy company that operates through three segments – Electric Utilities and Infrastructure, Gas Utilities and Infrastructure, and Commercial Renewables. The Electric Utilities and Infrastructure segment generates, transmits, distributes, and sells electricity in the Carolinas, Florida, and the Midwest. Duke Energy Corporation is one of the best utility stocks to invest in.
On October 24, investment advisory Guggenheim maintained a Buy recommendation on Duke Energy Corporation but lowered the firm’s price target on the shares to $97 from $119. Analyst Shahriar Pourreza issued the ratings update.
According to Insider Monkey’s data, Duke Energy Corporation was part of 30 hedge fund portfolios at the end of Q2 2022, compared to 32 funds in the last quarter. Jim Simons’ Renaissance Technologies is a prominent position holder in the company, with 1.08 million shares worth $116.20 million.
4. American Electric Power Company, Inc. (NASDAQ:AEP)
Number of Hedge Fund Holders: 30
American Electric Power Company, Inc. is an Ohio-based electric public utility holding company, specializing in the generation, transmission, and distribution of electricity for retail and wholesale customers in the United States. The company operates through Vertically Integrated Utilities, Transmission and Distribution Utilities, AEP Transmission Holdco, and Generation & Marketing segments. American Electric Power Company, Inc. is one of the premier utility stocks to invest in, with a robust dividend profile.
On October 10, Credit Suisse analyst Nicholas Campanella reiterated an Outperform rating on American Electric Power Company, Inc. but slashed the price target on the shares to $95 from $105. Key updates from the firm’s NYC Analyst Day include trimmed 2022 EPS guidance, 2023 EPS guidance of $5.19-$5.39 per share, updated 2023-2027 five-year capital plan to $40 billion, and updated forecasted closing for unregulated contracted renewable sale in Q2 2023, among other positive news. On October 24, Guggenheim analyst Shahriar Pourreza also maintained a Buy rating on the stock but lowered the price target to $93 from $109.
According to Insider Monkey’s data, Jim Simons’ Renaissance Technologies held the leading position in American Electric Power Company, Inc., comprising more than 1 million shares worth $99 million.
Here is what ClearBridge Investments Value Equity has to say about American Electric Power Company, Inc. in its Q1 2022 investor letter:
“About 5% of the portfolio is in transitioning power companies, typically migrating from coal to renewables. We have been active in encouraging these transitions and added a new position in American Electric Power. AEP has the fastest planned renewable energy ramp in the U.S., with plans to both shrink coal and grow renewables by 50% each by 2030. This would drive an 80% emissions reduction, while supporting high single-digit earnings growth at a double-digit return.”
3. WEC Energy Group, Inc. (NYSE:WEC)
Number of Hedge Fund Holders: 31
WEC Energy Group, Inc. (NYSE:WEC) was incorporated in 1981 and is headquartered in Milwaukee, Wisconsin. The company provides regulated natural gas and electricity, as well renewable and non-regulated renewable energy services in the United States. On October 20, WEC Energy Group, Inc. declared a $0.7275 per share quarterly dividend, in line with previous. The dividend is payable on December 1, to shareholders of record on November 14. The dividend yield on October 24 came in at 3.35%.
On October 20, KeyBanc analyst Sophie Karp reiterated an Overweight rating on WEC Energy Group, Inc. but trimmed the price target on the shares to $94 from $109 as utilities reversed 2022 outperformance in the last two weeks of Q3 2022. With higher rate expectations settling in, and significant underperformance in other cyclical sectors, the analyst thinks Utilities will largely become a source of funds moving forward.
According to Insider Monkey’s second quarter database, 31 hedge funds held stakes worth $618.5 million in WEC Energy Group, Inc., compared to 30 funds in the prior quarter worth $650.6 million.
Here is what ClearBridge Investments Dividend Strategy has to say about WEC Energy Group, Inc. in its Q3 2021 investor letter:
“In utilities we completed the exit of WEC Energy Group to fund our newer position in Sempra Energy. WEC is a solid, well-run utility but trades at a meaningful premium to the group despite similar long-term growth expectations.”
2. PG&E Corporation (NYSE:PCG)
Number of Hedge Fund Holders: 51
PG&E Corporation is a California-based company that delivers electricity and natural gas to customers in northern and central California. The company generates electricity using nuclear, hydroelectric, fossil fuel, fuel cell, and photovoltaic sources. PG&E Corporation is one of the elite utility stocks to monitor.
On October 7, RBC Capital analyst Shelby Tucker raised the price target on PG&E Corporation to $19 from $16 and maintained an Outperform rating on the shares. The analyst is “encouraged” by PG&E Corporation’s wildfire mitigation efforts and latest positive catalysts, such as the firm’s inclusion in the S&P 500.
According to Insider Monkey’s second quarter data, 51 hedge funds were long PG&E Corporation, with collective stakes worth $2.6 billion, compared to 51 funds in the prior quarter worth $3.2 billion. Dan Loeb’s Third Point is the leading position holder in the company, with 65.40 million shares valued at $652.7 million.
Here is what Third Point specifically said about PG&E Corporation in its Q3 2022 investor letter:
“Since we wrote about PG&E Corporation in May, the Company has continued to close the valuation gap with its regulated peer group. Over the third quarter PCG’s stock rose 25% versus a 6% decline in the XLU (a proxy for the S&P 500 Utilities Sector). Outperformance was driven by the S&P 500 indexing announcement and continued execution by Patti Poppe, the recently hired CEO, and her team. Management has focused its efforts on mitigating physical and financial risk by building in layers of protection against catastrophic wildfires, financial uncertainty, and rate-payer volatility. Importantly for a utility company, Ms. Poppe has a plan to make much needed investments in safety, reliability, and service quality via capital investment while simultaneously reducing operating expenses.
Despite the recent move, we are optimistic about the Company’s prospects with industry leading 10% EPS growth and likely dividend reinstatement in 2023. PG&E, which currently trades at a 6x discount to peers on ’23 earnings, should continue to re-rate as investors become more familiar with the enhanced regulatory framework under AB1054 and build further confidence in management’s execution capabilities.”
1. NextEra Energy, Inc. (NYSE:NEE)
Number of Hedge Fund Holders: 59
NextEra Energy, Inc. is one of the best utility stocks to invest in. The company generates, transmits, and distributes electric power to retail and wholesale customers in North America, using wind, solar, nuclear, coal, and natural gas facilities. On October 14, NextEra Energy, Inc. declared a $0.425 per share quarterly dividend, in line with previous. The dividend is payable on December 15, to shareholders of record on November 25.
On October 24, Guggenheim analyst Shahriar Pourreza assigned a Buy rating to NextEra Energy, Inc. but lowered the firm’s price target on the shares to $99 from $108. The analyst is refreshing some estimates before the Q3 earnings season in the Power and Utilities group to account for “known and measurable year-over-year items”.
Among the hedge funds tracked by Insider Monkey, Ken Fisher’s Fisher Asset Management featured as the leading position holder in NextEra Energy, Inc., with 16.2 million shares worth $1.26 billion. Overall, 59 hedge funds were long NextEra Energy, Inc. at the end of June 2022, compared to 64 funds in the last quarter.
In its Q2 2022 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and NextEra Energy, Inc. was one of them. Here is what the fund said:
“We increased our exposure to the energy transition during the quarter with new positions in Iberdrola (OTCPK:IBDSF), a Spanish-based integrated utility that is also one of the leading renewable energy developers in the world, and NextEra Energy, Inc., an integrated utility business with a regulated utility operating in Florida and the largest wind business in the U.S. The war has opened the eyes of the world that energy independence is critical. Renewables are for many countries the only way to get to the target. It is expected that existing renewable project pipelines will be executed faster, and more projects added to existing pipelines.
The energy transition would be extremely helpful for climate change and Iberdrola ranks well on our ESG matrix. NextEra, meanwhile, recently raised future earnings forecasts, citing a very favorable macro environment for rapid renewable generation expansion driven by decarbonization of the U.S. economy and the relative attractiveness of renewable generation in the context of high natural gas and power prices.”
You can also take a look at 13 Best Long-Term Dividend Stocks To Invest In and 11 Best High Beta Stocks To Buy Now.
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This article is originally published at Insider Monkey.
