10 Attractive Utility Stocks to Buy While They’re Down
Utility stocks tanked hard starting in mid-November on worries about rising interest rates, which can be bad for supposed "bond proxies" like utes. The broad Utilities Select Sector SPDR Fund (XLUÂ ) is off 11% since Nov. 17, versus a 4% gain for the Standard & Poor's 500-stock index.
But given the severe damage, these fears about fallout from rising rates may be fully priced in by now. Besides, many of the worries are unfounded to begin with. Here are a few quick reasons why utility stocks look attractive in this selloff, followed by 10 companies to consider buying.
Utilities aren't really bond proxies. Bonds pay a fixed coupon. Utilities constantly increase their earnings and dividends. So they aren't really bond proxies, says Gabelli & Company utility-stock analyst Timothy Winter. Electricity utilities increased their dividends by 5.9% in 2017, off earnings growth of about the same amount. "They are going to grow their way right through the modest increases in the Treasury yield," Winter says.
Fundamentals are sound. Winter predicts utilities will grow earnings 5%-6% annually over the next three to five years - much better than historical growth in the 3%-4%. Interest in renewable energy, the worn-down infrastructure and electric vehicles all support a veritable "super cycle" in utility capital investments, he says. This is good for investors because utilities make money by getting set rate
