Stock Market Volatility Intensifies: 5 Great Utility Picks

Wall Street witnessed a sharp decline on Nov 20 as a result of intensifying market turmoil. The broad-based market decline which emanated from concerns over future growth prospects of high-tech companies has escalated further owing to conflicting news on trade war front, expectations of higher interest rates in near future and apprehensions regarding an impending global economic slowdown.

Negative sentiments have dented investor confidence to such an extent that strong third-quarter earnings results have failed to instill optimism. At this juncture, it will be prudent to invest in defensive industry stocks like utilities with a favorable Zacks Rank and strong growth potential.

Wall Street Tumbles on Tuesday

On Nov 20, all three major stock indexes – the Dow 30, S&P 500 and Nasdaq Composite – plunged 2.2%, 1.8% and 1.7%, respectively. In fact, these three indexes have plummeted 2.6%, 2.6% and 5.4%, respectively, so far in November. Notably, in October, these three indexes had declined 5.1%, 6.9% and 9.2%, respectively.

Moreover, Nasdaq is already grappling in correction territory while the benchmark S&P 500 is just 4 points away of its correction territory. Meanwhile, the blue-chip Dow has declined more than 2,500 points from its all-time high registered in Oct 3.

Additionally, both the Dow and S&P 500 are in negative territory year to date while Nasdaq Composite is just hovering around it. Notably, this week (starting from Nov 19) has had the worst start to a Thanksgiving week for both the Dow and S&P 500 since 2011. For Nasdaq, this had been the worst start to Thanksgiving week since 2000.

Why Utility Stocks?

The Utilities sector is mature and fundamentally strong as demand for utility services is generally immune to vagaries of the economic cycle. It's because these companies provide basic services like electricity, gas and water, which can never go out of demand.

Consequently, adding stocks from the utility basket usually lends more stability to portfolios in an uncertain market condition. Moreover, Utility business is known for stability and visibility of its earnings and cash flows.  Stable earnings enable utilities to pay out consistent dividends that add to their attractiveness to income-oriented investors.

Utility companies enjoy a reputation for safety given the regulated nature of their business, which give their revenues a high level of certainty. These companies also benefit from the domestic orientation of their business, which shields them from foreign currency translation issues that have been plaguing the other industries of late.

Notably, in the last three months, S&P 500’s Utilities Select Sector SPDR (XLU) gained 1.1%. Barring a gain of a mere 0.1% of the Consumer Staples Select Sector SPDR (XLP), all the remaining nine sectors of the S&P 500 suffered significant losses during this period.

Our Top Picks

Stock markets are likely to remain volatile in near future due to trade concerns, geopolitical conflicts and strong U.S. dollar. Consequently, investment in defensive sectors such as utilities will be fruitful. We have narrowed down our search on five utility stocks with either a Zacks Rank #1 (Strong Buy) or 2 (Buy) and strong growth potential.

The chart below shows price performance of our five picks year to date.

Middlesex Water Co. MSEX treats stores and distributes water for residential, commercial, industrial and fire prevention purposes. It has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here. The company has expected earnings growth of 42% for current year. The Zacks Consensus Estimate for the current year has improved by 6.5% over the last 30 days.

Consolidated Water Co. Ltd. CWCO develops and operates seawater desalination plants and water distribution systems in the Cayman Islands, The Bahamas, Belize, the British Virgin Islands, Mexico, the United States, and Indonesia. It has a Zacks Rank #2. The company has expected earnings growth of 51% for current year. The Zacks Consensus Estimate for the current year has improved by 29.8% over the last 30 days.

ONE Gas Inc. OGS operates as a regulated natural gas distribution utility company in the United States. It has a Zacks Rank #2. The company has expected earnings growth of 11.2% for current year. The Zacks Consensus Estimate for the current year has improved by 9.8% over the last 30 days.

Ameren Corp. AEE engages in the rate-regulated electric generation, transmission, and distribution activities, rate-regulated natural gas distribution and transmission businesses. It has a Zacks Rank #2. The company has expected earnings growth of 19.1% for current year. The Zacks Consensus Estimate for the current year has improved by 3.1% over the last 30 days.

Atlantic Power Corp. AT owns and operates a fleet of power generation assets in the United States and Canada. It has a Zacks Rank #2. The company has expected earnings growth of 158.6% for current year. The Zacks Consensus Estimate for the current year has improved by 350% over the last 30 days.

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Ameren Corporation (AEE) : Free Stock Analysis Report
 
Atlantic Power Corporation (AT) : Free Stock Analysis Report
 
ONE Gas, Inc. (OGS) : Free Stock Analysis Report
 
Consolidated Water Co. Ltd. (CWCO) : Free Stock Analysis Report
 
Middlesex Water Company (MSEX) : Free Stock Analysis Report
 
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