A steep decline in manufacturing activity and a downtrend in global economic growth has been bothering investors for a long time now. This had dampened investors’ sentiment making them rush toward safe haven assets like utilities.
However, this sector, which is investors’ least favorite in a positive market scenario, has a stable outlook for 2020 from Fitch.
Factors Boosting Utilities
Utilities are known to be a defensive sector for its stable demand in times of market gyration. The stocks are a safe haven for investors when stock markets are suffering from economic slowdown and trade jitters.
Recently, investors have been hedging their investments, anticipating possible outcomes from U.S.-China trade negotiations. But that is not the only thing bothering investors. The global economy is slowing down and the manufacturing sector, in particular, is bearing the brunt. In fact, the U.S. manufacturing output dropped for the third consecutive month in October.
GDP has contracted in major European economies since the beginning of 2019 and scars are visible in Britain and Germany. Economic growth in the two economic giants, the United States and China has been slow, due to their existing trade tussles.
In fact, several analysts and economists are worried that the U.S.-China trade war and Brexit can rupture consumer confidence that has been driving economic growth. Another factor that keeps the tension fueled is that inflation normally picks up with economic activity. This means that while interest rates should rise, geopolitical tension and weak economic data have compelled central banks to cut benchmark rates.
The Federal Reserve has cut rates three times consecutively and is thus burdening the nation with debt. Some countries in the Eurozone have made deeper rate cuts into negative territory and restarted cash injections. In short, they are adding to the existing high level of debt that originated form the past decades’ financial crisis.
Per the latest ISM data, 12 out of 18 manufacturing industries in the United States have contracted in October with high loss in primary metals, clothing and textile mills. In spite of strong consumer spending and a high forecast for holiday sales, companies are delaying purchases and shying away from investing as uncertainties hover on trade war easing.
This, however, has boosted the utilities sector. In fact, on Nov 11, Fitch Ratings came up with a stable outlook for the U.S. power and gas utility sector in 2020. Fitch’s outlook is based on a constructive regulatory environment and low natural gas prices. In fact, gas prices are likely to stay around $2.75/MMBtu in 2020.
Grab These 5 Stocks on Stable Demand for Utilities
Given such conditions we have shortlisted five stocks from the U.S. power and gas utility sector that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
NRG Energy, Inc. NRG is a publicly traded energy company that produces, sells and delivers electricity and related products and services to residential, industrial and commercial consumers. The company’s expected earnings growth rate for the current year is 81.7%. The Zacks Consensus Estimate for current-year earnings has improved 8.4% over the past 60 days.
NRG Energy has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Spark Energy, Inc. SPKE is a publicly traded retail energy services company that engages in the retail distribution of electricity and natural gas to residential and commercial customers. The company’s expected earnings growth rate for the current quarter is 117.2%. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 60 days. Spark Energy has a Zacks Rank #1.
Atmos Energy Corporation ATO is a publicly traded energy company that engages in the regulated natural gas distribution, and pipeline and storage businesses in the United States. The company’s expected earnings growth rate for the current year is 6.9%. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the past 60 days. Atmos Energy has a Zacks Rank #2.
Alliant Energy Corporation LNT is a publicly traded energy company that provides regulated electricity and natural gas services in the Midwest region of the United States. The company’s expected earnings growth rate for the current year is nearly 6%. The Zacks Consensus Estimate for current-year earnings has improved 1.8% over the past 60 days. Alliant Energy has a Zacks Rank #2.
Black Hills Corporation BKH is a publicly traded electric and natural gas utilities company that operates through electric utilities, gas utilities, power generation and mining segments. The company’s expected earnings growth rate for the current quarter is 3.8%. The Zacks Consensus Estimate for current-year earnings has improved 1.2% over the past 60 days. Black Hills has a Zacks Rank #2.
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