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Utilities Demand Powers Industrial Production: 5 Great Picks

Swarup Gupta
Comtech Telecommunications (CMTL) closed the most recent trading day at $26.47, moving +1.26% from the previous trading session.

Industrial production continued to notch up gains in March, though the pace of increase declined to an extent. Data from the Federal Reserve shows that a sharp rebound in output from utilities and a second straight increase in mining output were primarily responsible for March’s gains.

Meanwhile, capacity utilization touched a three-year high, indicating that the economy possesses sufficient underlying strength. This lower level of slack is likely to increase inflationary pressures which in turn would help to raise GDP. Given this backdrop investing in utilities stocks, which provide lucrative dividends, remains a smart option at this point.

Capacity Utilization Hits 3-Yr High

The highlight of last month’s industrial production data was a spurt in capacity utilization. This gauge of slack in the industrial segment of the economy advanced 0.3 percentage point to touch 78%. The figure exceeded the consensus estimate of 77.9 and also hit its highest level in three years. A decline in industrial sector slack will likely boost inflation, which in turn could fuel growth further.

However, industrial production itself increased by only 0.5%, exceeding the consensus estimate of 0.3% but falling well behind February’s revised increase of 1%. The pace of gains dropped because manufacturing output managed only to inch up 0.1% in March after a 1.5% advance in February.

Utilities Gains Powers Headline Number

Primarily responsible for March’s manufacturing gains was a 2.7% increase in auto production. Assemblies of automotive units jumped to an annual pace of 12 million units, the highest recorded since December 2016. Excluding the auto production component, manufacturing actually declined 0.1% in March. This was in keeping with the ISM Manufacturing Index’s 1.5% decline to 59.3.

Ultimately, gains in mining and utilities output lifted the headline number. Gains in support activities and oil and gas production helped boost mining output by 1%. More significantly, utilities output advanced by 3%. This strong rebound for the sector comes after a 5% decline in February, caused by a drop in demand due to unseasonably warm weather.

Our Choices

Industrial production managed to notch up gains last month despite a drop in manufacturing output. A rebound in demand for utilities was one of the major factors powering gains for the headline number.

With the economic environment remaining favorable, utilities demand is likely to remain strong in the months to come. This is why it makes sense to add stocks from this sector to your portfolios. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.

South Jersey Industries, Inc. SJI is an energy services holding company which delivers energy solutions to its customers through three primary subsidiaries.

South Jersey Industries has a Zacks Rank #1 (Strong Buy). The company has expected earnings growth of 28.5% for the current year The Zacks Consensus Estimate for the current year has improved by more than 9% over the last 60 days. The stock has a dividend yield of 3.7%.

Shenandoah Telecommunications Company SHEN is a holding company which provides a broad range of telecommunications services through its operating subsidiaries.

Shenandoah Telecommunications has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved by 17.4% over the last 30 days. The stock has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The AES Corporation AES is a global power company. The company’s businesses are spread across five continents in 18 countries.

AES Corp has a Zacks Rank #2 (Buy). The company has expected earnings growth of 11.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 1.4% over the last 30 days. The stock has a dividend yield of 4.5%.

CMS Energy Corporation CMS is the holding company of Consumers Energy Company (Consumers) and CMS Enterprises Company (Enterprises).

CMS Energy has a Zacks Rank #2. The company has expected earnings growth of 7.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.1% over the last 30 days. The stock has a dividend yield of 3.2%.

Spire Inc. SR is a public utility company which is engaged in the purchase, retail distribution, sale and marketing of natural gas.

Spire has a Zacks Rank #2. The company has expected earnings growth of 5.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.1% over the last 30 days. The stock has a dividend yield of 3.2%.

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CMS Energy Corporation (CMS) : Free Stock Analysis Report
 
The AES Corporation (AES) : Free Stock Analysis Report
 
South Jersey Industries, Inc. (SJI) : Free Stock Analysis Report
 
Shenandoah Telecommunications Co (SHEN) : Free Stock Analysis Report
 
Spire Inc. (SR) : Free Stock Analysis Report
 
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