We recently compiled a list of 8 Most Profitable Utility Stocks To Invest In. In this article, we will look at where AES (NYSE:AES) ranks among the most profitable utility stocks.

Utilities to Experience Significant Growth

According to Research and Markets, the global utility market was valued at $6.89 trillion in 2024 and is projected to reach $8.83 trillion by 2028, growing at a CAGR of 6.4%. The market’s expansion is expected to be driven by several factors, including population growth, economic development, investments in renewable energy, and a rise in utility mergers and acquisitions. Key trends in the sector include a focus on Power Purchase Agreements (PPAs), increased funding for solar energy battery storage, and investments in technologies such as smart grids and smart meters.

A Stable and Secure Investment

Keith Meister, Chief Investment Officer at Corvex Management, in an interview on CNBC, shared his perspective on the utility sector. Meister pointed out that utilities are well-regulated businesses that have historically experienced flat electricity load growth in the U.S. from 2013 to 2023. However, new technologies and regulatory changes, such as the Inflation Reduction Act (I.R.A.) and advances in Artificial Intelligence (A.I.), have boosted the sector’s projected growth rate to 3%. This growth is driven by increasing electricity demand, particularly as renewable energy sources become more widely adopted and the need for power to support technological advancements rises.

Meister believes the U.S. has created strong capital markets and incentives for investment in the utility sector, making it a favorable investment in the current cycle. He noted that a few years ago, utilities were trading at 20 times the market, but now they are more reasonably priced at two times the market. This drop in valuation makes utilities an appealing investment opportunity, especially considering their guaranteed income and solid dividends.

Meister highlighted the sector’s appealing characteristics, such as guaranteed income and good dividends, which make utilities a strong investment option. Investors don’t need to rely on multiple expansions to achieve 10% growth from these stocks, and any additional earnings growth would be a bonus. In a market where growth and returns are increasingly uncertain, utilities offer a relatively stable and secure investment opportunity.

The global utilities market is poised for significant growth, driven by a combination of factors including population growth, economic development, and increasing investments in renewable energy. The global utilities market is an attractive opportunity for investors looking for a stable income and return on investment.

Our Methodology

To compile our list of the 8 most profitable utility stocks to invest in, we used the Finviz and Yahoo stock screeners to compile an initial list of the 20 largest utility companies by market cap. From that list, we narrowed our choices to companies with positive TTM net income and 5-year net income growth informed by reputable sources, including SeekingAlpha, which provided insights into 5-year growth rates, and Macrotrends, which supplied information on trailing twelve-month (TTM) net income. Then we sorted the stocks in ascending order, according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024.

Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

AES (NYSE:AES)  

Number of Hedge Fund Holders: 46  

TTM Net Income: $754 Million  

5-Year Net Income CAGR: 13.52%

AES (NYSE:AES) is a utility company focused on providing affordable and sustainable energy solutions. The company operates in 15 countries and owns renewable energy assets, such as solar and wind in addition to conventional energy sources. AES (NYSE:AES) is committed to achieving net zero carbon emissions by 2050 and has made significant progress in expanding its clean energy portfolio.

AES’s (NYSE:AES) business model is well-positioned to benefit from the increasing global demand for clean energy. The company is rapidly growing its renewable portfolio, with a target of reaching 30GW of capacity by 2027, a key factor in its contracts with major corporate clients such as Microsoft and Google. AES’s (NYSE:AES) diverse revenue streams, including electricity generation, utility services, and energy infrastructure, provide stability during cyclical market fluctuations. The company’s aggressive transition to renewables is expected to fuel long-term growth, with its growing project backlog showcasing its ability to execute its strategy.

Despite being a major utility player, AES (NYSE:AES) is trading at 9.06 times this year’s earnings estimate, representing a 48.02% discount to its sector median of 17.44. The company’s 3.55% dividend yield is attractive, and its investment-grade credit rating remains stable. Analysts predict AES’s (NYSE:AES) earnings will grow by 8.69% this year and are optimistic about its stock, with a consensus Buy rating and a target price of $22.59, indicating a potential 26.35% increase from its current level.

Overall AES ranks 4th on our list of most profitable utility stocks to invest in. While we acknowledge the potential of AES as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AES but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

Disclosure. None. This article is originally published on Insider Monkey.