In this article, we discuss 10 best electric utility stocks to invest in. If you want to see more stocks in this selection, check out 5 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 toldForbes 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.
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. (NYSE:EVRG) 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. (NYSE:EVRG) 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. (NYSE:EVRG) 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. (NYSE:EVRG)’s 6%-8% EPS CAGR as attainable.
According to Insider Monkey’s data, 22 hedge funds were long Evergy, Inc. (NYSE:EVRG) 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. (NYSE:NEE), American Electric Power Company, Inc. (NASDAQ:AEP), and Duke Energy Corporation (NYSE:DUK), Evergy, Inc. (NYSE:EVRG) is one of the best utility stocks to consider in the current market backdrop.
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 (NYSE:AEE) has four segments – Ameren Missouri, Ameren Illinois Electric Distribution, Ameren Illinois Natural Gas, and Ameren Transmission.
On October 14, Ameren Corporation (NYSE:AEE) 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 (NYSE:AEE) delivers a dividend yield of 3.03% as of October 24.
Guggenheim analyst Shahriar Pourreza reiterated a Buy recommendation on Ameren Corporation (NYSE:AEE) 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 (NYSE:AEE), compared to 28 funds in the prior quarter worth $561 million.
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. (NASDAQ:XEL) 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. (NASDAQ:XEL) is one of the best utility stocks to invest in.
Wolfe Research analyst Steve Fleishman on October 20 upgraded Xcel Energy Inc. (NASDAQ:XEL) 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. (NASDAQ:XEL) 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. (NASDAQ:XEL), with 1.7 million shares worth $122.5 million.
Aristotle Capital Management mentioned Xcel Energy Inc. (NASDAQ:XEL) 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.
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 (NYSE:EIX) is one of the premier utility stocks to invest in.
On August 25, Edison International (NYSE:EIX) 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 (NYSE:EIX) 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 (NYSE:EIX) 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.”
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 (NYSE:DTE) and 7-Eleven announced 7-Eleven's enrollment in MIGreenPower, DTE Energy Company (NYSE:DTE)’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 (NYSE:DTE) 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 (NYSE:DTE), 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. (NYSE:NEE), American Electric Power Company, Inc. (NASDAQ:AEP), and Duke Energy Corporation (NYSE:DUK), elite investors are bullish on DTE Energy Company (NYSE:DTE) as one of the best plays in the utilities sector.
