Top utility stocks this month include Enlight Renewable Energy Ltd., Central Puerto S.A., and Constellation Energy Corp., which have each returned at least 55% over the past 12 months. Utilities stocks as a group, represented by the Utilities Select Sector SPDR ETF (XLU), have fallen 7% over the past 12 months, while the Russell 1000 index has fallen 5%.
U.S. energy prices surged in 2022 after Russia's invasion of Ukraine and subsequent sanctions drove up the price of natural gas, which generates 40% of U.S. utility-scale electricity. That trend is expected to reverse in 2023, with energy prices seen dropping as much as 37%.
Nonetheless, utilities are often seen as a safe investment during recessions or periods of weak economic growth because demand for electricity, gas, and water services remains steady.
Below, we look at the top utilities stocks in the categories of best value, fastest growth, and most momentum. All data are as of March 7.
Best Value Utilities Stocks
These are the utilities stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you're paying less for each dollar of profit generated.
|Best Value Utilities Stocks|
|Price ($)||Market Capitalization (Market Cap) ($B)||12-Month Trailing P/E Ratio|
|Brookfield Renewable Corp. (BEPC)||27.85||4.8||3.2|
|Brookfield Infrastructure Corp. (BIPC)||43.21||4.8||3.3|
|Pampa Energia S.A. (PAM)||32.99||1.8||4.4|
- Brookfield Renewable Corp.: Brookfield Renewable owns and operates pure-play renewable energy facilities focusing on wind, solar, and hydroelectric power. Brookfield Renewable is in the process of acquiring Origin Energy Ltd.'s energy markets business, "Australia's largest integrated generation and retail company."
- Brookfield Infrastructure Corp.: Brookfield Infrastructure distributes natural gas and electricity throughout the U.K., Brazil, and Australia.
- Pampa Energia S.A.: Pampa Energia is an integrated energy company based in Argentina operating hydroelectric plants, thermal plants, and wind farms. The company also explores and produces natural gas, oil, and various petrochemicals.
Fastest-Growing Utilities Stocks
These are the top utilities stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and most recent quarterly YOY earnings-per-share (EPS) growth.
Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with a quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.
|Fastest-Growing Utilities Stocks|
|Price ($)||Market Cap ($B)||EPS Growth (%)||Revenue Growth (%)|
|Excelerate Energy Inc. (EE)||21.61||0.6||N/A (see company description)||318|
|Enlight Renewable Energy Ltd. (ENLT)||16.27||1.7||N/A (see company description)||146|
|New Fortress Energy Inc. (NFE)||32.99||6.9||N/A (see company description)||140|
- Excelerate Energy Inc.: Excelerate Energy is a natural gas distribution company that transports LNG through floating storage and regasification units (FSRU). On Nov. 9, Excelerate Energy reported third-quarter earnings, with net income surging 27-fold while revenue quadrupled. Excelerate Energy doesn't have an EPS growth figure in the table above because the company's initial public offering (IPO) was in April 2022.
- Enlight Renewable Energy Ltd.: Enlight Renewable Energy is a renewable energy producer based in Israel with wind farms, solar energy projects, and integrated energy systems in Europe and the U.S. The company raised $252 million when it began trading on the Nasdaq at $17.90 on February 10. Enlight Renewable doesn't have an EPS growth figure in the table above because of its recent IPO.
- New Fortress Energy Inc.: New Fortress finances, develops, and runs natural gas facilities, power plants, and energy infrastructure. The company also offers leasing agreements for FRSU and LNG carriers. Its operations are located in the Caribbean, Europe, Latin America, and Asia. On Feb. 6, the company announced an agreement with Golar LNG to sell its stake in Hilli in exchange for $100 million and the return of 4.1 million shares of NFE stock. Note New Fortress Energy doesn't have an EPS growth figure in the table above because the company reported negative EPS in the year-ago quarter.
Utilities Stocks With the Most Momentum
These are the utilities stocks that had the highest total return over the past 12 months.
|Utilities Stocks With the Most Momentum|
|Price ($)||Market Cap ($B)||12-Month Trailing Total Return (%)|
|Central Puerto S.A. (CEPU)||6.18||0.9||73|
|Constellation Energy Corp. (CEG)||74.89||24.5||64|
|Pampa Energia S.A. (PAM)||32.99||1.8||57|
|Utilities Select Sector SPDR ETF (XLU)||N/A||N/A||-7|
- Central Puerto S.A.: Central Puerto generates and sells electricity to local customers in Argentina through wind farms, thermal generator plants, and hydroelectric facilities.
- Constellation Energy Corp.: Constellation is a clean energy company that produces energy-related products through nuclear, wind, and natural gas assets. Constellation Energy started production of the nation's first 1 Megawatt demonstration scale clean hydrogen plant powered by nuclear energy in Oswego, NY.
- Pampa Energia S.A.: See company description above.
The Impact of Interest Rates on Utilities Stocks
Those who invest in utilities stocks should understand how fluctuations in interest rates can influence their performance. Typically, changing interest rates affect this sector in two ways: competition with fixed-interest securities and the cost of servicing debt.
Competition With Fixed Interest Securities: Generally, those who invest in this group prefer yield over growth. Therefore, when interest rates are high, these investors favor fixed-interest securities over utilities stocks as they provide attractive risk-free returns.
For example, if the U.S. 10-year Treasury note and a utilities stock both yield 3%, risk-averse investors would invest in the Treasury note because it offers the same yield but isn't affected by company or market risk. However, these investors would favor utilities stocks over fixed-interest securities when interest rates are low or falling because the utilities stocks offer more lucrative returns while typically displaying lower volatility than stocks in other sectors.
Cost of Servicing Debt: Utilities companies carry high debt levels to build, maintain, and upgrade essential infrastructure, such as electricity grids, gas pipelines, water systems, and renewable energy sources. Therefore, servicing that debt becomes more difficult when interest rates rise. If utilities companies are unable to pass extra financing costs on to customers, they may be partially borne by investors.
Advantages of Utilities Stocks
Most utilities companies pay investors steady dividends as they form part of a regulated industry with highly predictable cash flows. In addition, ongoing demand for their services, irrespective of the economy's health, makes them an attractive safe-haven investment during periods of economic uncertainty, such as during a recession or downturn.
The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. Though we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses in our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.
YCharts. "Financial Data."
U.S. Energy Information Administration. "Frequently Asked Questions: What is U.S. electricity generation by energy source?"
Brookfield Renewable Corp. "Brookfield Renewable Acknowledges Annoucnement by Origin Energy."
Excelerate Energy Inc. "Excelerate Energy Announces Third Quarter 2022 Results."
Reuters. "Israel's Enlight Renewable valued at $2 bln in New York debut."
New Fortress Energy Inc. "New Fortress Energy Sells Stake In Hilli for Cash and Return of Remaining NFE Shares Held by Golar."
Constellation Energy Corp. "Constellation Starts Production at Nation's First One Megawatt Demonstration Scale Nuclear-Powered Clean Hydrogen Facility."
J.P. Morgan. "What to Consider When Investing in Utilities."
The Wall Street Journal. "How Utility Stocks Have Kept Their Spark."