In this article, we will take a look at the 10 most undervalued utility stocks to buy according to hedge funds.
Investors flocked to utility stocks in 2022 in search of some semblance of safety. Utility stocks are considered defensive investments as utility companies feel little or no effect of broader economic downturns since they continue to collect money from customers in exchange of essential services like electricity, heating and water. The S&P 500 utilities sector was up more than 8% year to date in 2022 through September. However, during the last months of the year, utility stocks were hammed amid rising bond yields, which beat dividend yields offered by major utility companies.
Still, utility stocks are some of the safest investment options for investors. The biggest factor that makes utilities stocks attractive is dividends. As you will see in this article, many utility companies offer steady and regular dividends to shareholders. Some of these stocks in sector have raised their dividend payouts consistently for the last several years.
In a report published in December 2022, Fidelity said that the outlook for the utilities sector remains strong for 2023. The firm also believes the long-term outlook for the industry is bullish. Fidelity believes the world is moving from “petro-state” to “electro-state.” This shift, Fidelity believes, would bode well for the sector. The report also said that the Inflation Reduction Act would benefit the industry as the US government will give subsidies to lower the costs of renewable energy. Major companies are now moving away from fossil fuels to cleaner energy sources. All of this, according to Fidelity, would hasten the shift from “petro-economy” to “electro-economy.”
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Our Methodology
For this article, we scanned Insider Monkey’s database of holdings of 920 elite hedge funds and picked the top 10 utility stocks with PE ratios of less than 20. That means these are the most popular undervalued utility stocks among the elite hedge funds. Most of these stocks pay dividends and have positive ratings from the Wall Street as well. The list is ranked in descending order of PE ratios. The data for PE ratio is as of January 26.
Most Undervalued Utility Stocks To Buy According To Hedge Funds
10. Eversource Energy (NYSE:ES)
PE Ratio as of January 26: 19.83
Eversource Energy (NYSE:ES) is a Massachusetts-based utility company. Eversource Energy (NYSE:ES) has a dividend yield of over 3% as of January 26. A total of 30 hedge funds among the 920 elite hedge funds tracked by Insider Monkey as of the end of the third quarter reported having stakes in Eversource Energy (NYSE:ES). The total value of these stakes at the end of the third quarter was $674 million.
In December, Eversource Energy (NYSE:ES) declared a dividend of $0.6375 per share, in line with the previous quarterly dividend. Forward dividend yield at the time came in at 3.02%.
In November, Eversource Energy (NYSE:ES) posted its third quarter results. Eversource Energy (NYSE:ES)’s adjusted EPS in the period came in at $1.01, missing estimates by $0.04. Revenue in the quarter jumped about 31% to reach $3.22 billion, beating estimates by $560 million. Eversource Energy (NYSE:ES) reaffirmed its 2022 earnings per share (EPS) projection of $4.04 to $4.14 per share. Consensus estimate for this figure stands at $4.11, excluding the 2022 charges.
9. Consolidated Edison, Inc. (NYSE:ED)
PE Ratio as of January 26: 19.82
Consolidated Edison, Inc. (NYSE:ED) is one of the best utility stocks to buy especially during recession and tough market situation. Consolidated Edison, Inc. (NYSE:ED) is a dividend aristocrat, having upped its dividend for 49 straight years now. Hedge funds are also piling into this stock. 27 hedge funds tracked by Insider Monkey were bullish on Consolidated Edison, Inc. (NYSE:ED) as of the end of the third quarter, compared to 21 funds in the previous quarter. This shows the smart money is buying stakes in Consolidated Edison, Inc. (NYSE:ED).
Earlier in January, Consolidated Edison, Inc. (NYSE:ED) increased its dividend by 2.5%.
In November last year, Bank of America upgraded Consolidated Edison, Inc. (NYSE:ED) to Neutral from Underperform, raising its price target to $95 from $78. The firm said that Consolidated Edison, Inc. (NYSE:ED) mostly relies on earnings from its regulated business following the $6.8 billion sale of its Clean Energy Business. This has de-risked Consolidated Edison, Inc. (NYSE:ED)’s profile, according to BofA.
8. DTE Energy Company (NYSE:DTE)
PE Ratio as of January 26: 19.63
In December 2022, investment firm Wolfe Research upgraded DTE Energy Company (NYSE:DTE) to Outperform from Peer Perform with a $125 price target. DTE Energy Company (NYSE:DTE) cited the overblown impact of the “disappointing” Michigan rate order at the time for the ratings upgrade and said that the fears of Michigan regulatory deterioration were “overdone.”
DTE Energy Company (NYSE:DTE) recently also announced that one-third of all electricity it produces now comes from carbon-free power sources. DTE Energy Company (NYSE:DTE) plans to become net-zero carbon emitter by 2050.
Of the 920 hedge funds in Insider Monkey’s database, 30 hedge funds were bullish on DTE Energy Company (NYSE:DTE) as of the end of the third quarter. The total worth of the stakes of these hedge funds was $556 million. The biggest stakeholder of DTE Energy Company (NYSE:DTE) was Israel Englander’s Millennium Management with an $84 million stake.
7. American Electric Power Company, Inc. (NASDAQ:AEP)
PE Ratio as of January 26: 19.15
American Electric Power Company, Inc. (NASDAQ:AEP) provides electricity to about five million customers in 11 states. It is one of the most undervalued utility stocks to buy according to hedge funds, as 35 funds in Insider Monkey’s database of 920 funds as of the end of the third quarter reported having stakes in American Electric Power Company, Inc. (NASDAQ:AEP), compared to 30 funds in the previous quarter. The total value of these stakes was about $671 million. American Electric Power Company, Inc. (NASDAQ:AEP) is also a dividend-paying stock. Earlier in January, American Electric Power Company, Inc. (NASDAQ:AEP) declared a dividend of $0.83 per share. Forward dividend yield came in at about 3.58%.
However, American Electric Power Company, Inc. (NASDAQ:AEP) recently received ratings cut at Evercore ISI as the firm downgraded American Electric Power Company, Inc. (NASDAQ:AEP) to In-Line from Outperform with a $102 price target. The firm cited valuation concerns for the downgrade. American Electric Power Company, Inc. (NASDAQ:AEP) posted 10% gains in 2022, as compared to the 4% average gains posted by peers in the utility space. However, the firm noted that the long-term growth prospects of the stock remain strong.
6. PG&E Corporation (NYSE:PCG)
PE Ratio as of January 26: 19.04
PG&E Corporation (NYSE:PCG) is one of the biggest utility companies in the US. It is also among the most popular utility names to buy according to elite hedge funds in America. As of the end of the third quarter, 46 hedge funds tracked by Insider Monkey reported having stakes in PG&E Corporation (NYSE:PCG).
In October, PG&E Corporation (NYSE:PCG) posted its third quarter results. PG&E Corporation (NYSE:PCG)’s net profit in the period came in at $0.21 per share, as compared to a loss of $0.55 per share posted in the comparable period last year.
Dan Loeb’s Third Point is the biggest stakeholder of PG&E Corporation (NYSE:PCG) as of the end of September 2022. The fund owns a $793 million stake in PG&E Corporation (NYSE:PCG).
ClearBridge Investments made the following comment about PG&E Corporation (NYSE:PCG) in its Q3 2022 investor letter:
“PG&E Corporation (NYSE:PCG) is a regulated utility operating in central and northern California that serves 5.3 million electricity customers and 4.4 million gas customers in 47 of the state’s 58 counties. PG&E outperformed over the quarter after two pieces of California legislation passed that were seen as constructive and supportive of the company’s investment plans. There was a further positive announcement at the end of the quarter when S&P decided to add the company to the S&P 500 Index, opening the door for broader ownership.”
5. FirstEnergy Corp. (NYSE:FE)
PE Ratio as of January 26: 18.70
FirstEnergy Corp. (NYSE:FE) is one of the most popular undervalued utilities stocks among the elite hedge funds tracked by Insider Monkey. 41 out of the 920 funds in Insider Monkey database reported having stakes in FirstEnergy Corp. (NYSE:FE) as of the end of the third quarter of 2022. The biggest stakeholder of FirstEnergy Corp. (NYSE:FE) was Carl Icahn’s Icahn Capital LP which owns a $702 million stake in FirstEnergy Corp. (NYSE:FE). Another notable stakeholder in FirstEnergy Corp. (NYSE:FE) was Ken Griffin’s Citadel Investment Group, which had a $194 million stake.
In December, FirstEnergy Corp. (NYSE:FE) declared a quarterly dividend of $0.39 per share quarterly dividend. Forward dividend yield at the time came in at 3.69%. The dividend is payable on March 1 for shareholders of record as of February 7.
4. Avangrid, Inc. (NYSE:AGR)
PE Ratio as of January 26: 18.13
Avangrid, Inc. (NYSE:AGR) is a Connecticut-based utility company that is powering millions of homes in the US. Avangrid, Inc. (NYSE:AGR)’s dividend yield stands at over 4% as of January 26. In October 2022, Mizuho analyst Paul Fremont upped his price target for Avangrid, Inc. (NYSE:AGR) to $41 from $ and kept a Neutral rating on Avangrid, Inc. (NYSE:AGR). The analyst set a Neutral rating on the shares. The analyst at the time said that he is hopeful that Avangrid, Inc. (NYSE:AGR)’s negotiations with Connecticut and Massachusetts for higher prices for its Commonwealth and Park City offshore wind projects will be successful.
As of the end of the third quarter, 16 hedge funds tracked by Insider Monkey reported having stakes in Avangrid, Inc. (NYSE:AGR), compared to 17 funds in the previous quarter. The total value of these stakes was about $96 million. The biggest stakeholder in Avangrid, Inc. (NYSE:AGR) as of the end of the September quarter of 2022 was Paul Marshall and Ian Wace’s Marshall Wace LLP, which had a $22 million stake in Avangrid, Inc. (NYSE:AGR).
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3. NiSource Inc. (NYSE:NI)
PE Ratio as of January 26: 17.92
NiSource Inc. (NYSE:NI) is an Indiana-based utility company that serves millions of natural gas and electricity customers in the US. In November, NiSource Inc. (NYSE:NI) posted its third quarter results. NiSource Inc. (NYSE:NI)’s adjusted EPS in the period came in at $0.10, in-line with estimates. However, NiSource Inc. (NYSE:NI) narrowed its 2022 adjusted net operating earnings per share (NOEPS) guidance to $1.44 to $1.46 versus the consensus estimate of $1.45. NiSource Inc. (NYSE:NI) also gave 2023 guidance of $1.50 to $1.57 non-GAAP diluted NOEPS vs. consensus of $1.55.
Hedge fund sentiment for NiSource Inc. (NYSE:NI) saw a huge jump in the third quarter. A total of 32 hedge funds tracked by Insider Monkey reported owning stakes in NiSource Inc. (NYSE:NI) as of the end of the period, compared to 23 funds that had stakes in NiSource Inc. (NYSE:NI) at the conclusion of the second quarter of 2022.
2. Entergy Corporation (NYSE:ETR)
PE Ratio as of January 26: 17.47
Entergy Corporation (NYSE:ETR) ranks 2nd in our list of the most undervalued utility stocks to buy according to hedge funds. Of the 920 hedge funds tracked by Insider Monkey as of the end of the third quarter, 31 funds had stakes in Entergy Corporation (NYSE:ETR). The biggest stakeholder of Entergy Corporation (NYSE:ETR) was Israel Englander’s Millennium Management with an $88.4 million stake. The second biggest stakeholder in Entergy Corporation (NYSE:ETR) was Michael Gelband’s ExodusPoint Capital which reported owning a $60 million stake in Entergy Corporation (NYSE:ETR).
In November, Entergy Corporation (NYSE:ETR) posted its third-quarter results. Entergy Corporation (NYSE:ETR)’s adjusted EPS in the period came in at $2.48, beating estimates by $0.19. However, Entergy Corporation (NYSE:ETR) narrowed its 2022 adjusted EPS forecast to the range of $6.25 to $6.45 versus the consensus of $6.38. Previous guidance was $6.15 to $6.45.
1. National Grid plc (NYSE:NGG)
PE Ratio as of January 26: 12.14
National Grid plc (NYSE:NGG) is a British multinational electricity and gas utility company headquartered in London, England. National Grid plc (NYSE:NGG) has a PE ratio of 12.11 as of January 26. National Grid plc (NYSE:NGG) has a dividend yield of over 4%. A total of 14 hedge funds tracked by Insider Monkey have stakes in National Grid plc (NYSE:NGG).
Here is what ClearBridge Investments has to say about National Grid plc (NYSE:NGG) in its Q2 2021 investor letter:
“In Western Europe, U.K. electric utility National Grid contributed the most. National Grid is one of the world’s largest publicly owned utilities, focused on transmission and distribution activities in electricity and gas. It owns and operates regulated electricity and gas network assets in both the U.K. and the U.S., which contribute about 95% of its earnings and equity value. National Grid’s share price increased during the quarter following the announcement of its agreement to acquire WPD, a group of U.K. electricity distribution businesses, and sell part of its U.S. assets. It also announced its intention to dispose of a majority stake in its U.K. gas transmission business.”
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Disclosure: None. 15 Most Undervalued Value Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.
