For Immediate Release
Chicago, IL – September 17, 2015 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Goldman Sachs (GS), Brookfield Infrastructure Partners L.P. (BIP), Companhia Paranaense de Energia (ELP), TerraForm Power, Inc. (TERP) and IdaCorp, Inc. (IDA).
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Here are highlights from Wednesday’s Analyst Blog:
September Rate Hike Unlikely? 4 Utility Stocks to Buy
The Federal Open Market Committee meeting is about to kick off today. Investors are looking for clues as to when the Federal Reserve will start hiking rates. The current volatility in the financial markets fueled by slowdown in Chinese economy and slump in commodity prices might compel the policymakers to delay a rate hike in September.
Slack in the labor market report, declines in Q3 GDP estimates and a drop in consumer sentiment also raises doubts on whether the Fed should begin the process of normalizing rates this early. The “wisdom of the crowds” as represented by the Fed funds futures market has priced a meager 28% chance of a rate hike this month.
If at all the rate hike is delayed, it would be a prudent idea to invest in utility stocks. These dividend picks are better-off than bonds in a low interest rate environment. Moreover, even if a rate hike occurs, we have handpicked such stocks that have enough resources to pay off its debts. These debts occur as utilities resort to external sources of financing to meet capital requirements.
Uncertainty in Financial Markets
The weak Chinese economy raised concerns about global economic growth, which eventually dampened sentiment in the U.S. markets as well. China disappointed markets following lower-than-expected investment and factory output, dismal manufacturing data, a significant trade gap and a decline in foreign exchange reserves, among other dismal reports.
Discouraging data from China raised fears of lower demand for crude, thereby dragging crude prices lower. In fact, commodity prices, led by crude oil, have touched new multi-year lows that raised concerns about disinflationary pressures.
Benchmarks posted record monthly losses in August as investors grappled with economic slowdown in China and Yuan’s surprise devaluation. All the major indexes moved in and out of their correction territory to end a volatile August in the red. The CBOE Volatility Index (VIX) had touched a six and a half year peak of 53.3 last month.
Currently, the fear gauge index continues to hover above 20, indicating high volatility. Hence, as volatility persists in the markets it seems unlikely that the Fed will trigger a rate hike this month.
Given the slowdown in China’s economy, decline in commodity prices and volatility in financial markets New York Fed President William Dudley had already said that a September rate hike is “less compelling,” Fed Vice Chairman Stanley Fischer also had said that a September rate hike was “pretty strong” before China devalued its currency.
Meanwhile, World Bank’s chief economist Kaushik Basu warned Fed that an increase in interest rates would spark “panic and turmoil” in emerging economies, which will do no good to the U.S. economy. A Fed rate hike will result in outflow of capital from emerging countries into dollar-denominated assets, resulting in further turmoil in global markets.
Jobs Data Fails to Provide Clarity
The highly anticipated jobs report failed to indicate the timing of a rate hike. Even though unemployment rate dropped to its lowest level in seven years and wages went up in August, the headline numbers showed worst jobs growth since March.
Additionally, inflation persistently remained below the Fed’s 2% target rate. The “core inflation” remained around 1.8%, which provided support for a less accommodative policy. Further, fall in import prices indicated inflation is trending lower.
Meanwhile, the Atlanta Fed trimmed its Q3 GDP forecast to 1.2%, down from an earlier prediction of 1.4%. Weakness in real services consumption for July was responsible for this downward revision. Along with this, consumer sentiment dropped to a one year low this month, which may have taken a September rate hike off the table.
Opinion Polls: Sept Rate Hike Unlikely
According to The Wall Street Journal, around 46% of economists surveyed last week forecasted a rate hike in the Sep 16-17 meeting, while majority of them expects a rate hike later this year. The tally fell sharply from an early August poll that saw 82% of economists supporting a rate hike in September.
Meanwhile, Goldman Sachs (GS) expects a December liftoff. Volatile markets and inflation data falling short of expectations strengthened their conviction that a September rate hike is too early. Additionally, Bankrate Economic Indicator survey shows that China’s currency devaluation leading to a massive selloff in stocks will compel the Fed to stay on hold with its liftoff this month.
4 Utility Picks
Investing in utility stocks will be a good idea if low interest rate persists for the time being. Utilities are capital intensive business and the funds generated from internal sources are not always sufficient to meet their requirements. Hence, these companies have high level of debt loads. Low interest rates will help them pay off debts and book profits.
Higher interest rates and an increase in the debt level -- for that matter a steep debt/equity ratio -- impact the credit ratings of these utility operators. If the credit ratings go down, a company will find it difficult to borrow funds from the markets at reasonable rates, leading to a rise in cost of operations. So, while investing in a utility, one must take a note of its outstanding debts.
We have selected utility stocks that have current ratio greater than 1. This indicates a company has enough resources to pay its debts over the next 12 months. Our selection is also backed by good Zacks Rank.
Brookfield Infrastructure Partners L.P. (BIP) owns and operates certain infrastructure assets on a global basis. BIP holds a Zacks Rank #1 (Strong Buy) and has a current ratio of 1.61. The company also has a debt/capital ratio of 45.78% and a dividend yield of 5.57%.
Companhia Paranaense de Energia (ELP) is involved in generation, distribution and transmission of electricity. ELP holds a Zacks Rank #2 (Buy) and has a current ratio of 1.64. The company also has a debt/capital ratio of 29.93% and a dividend yield of 9.29%.
TerraForm Power, Inc. (TERP) operates clean power generation assets including solar, wind, natural gas, geothermal and hydro-electricity. TERP holds a Zacks Rank #2 (Buy) and has a current ratio of 1.28. The company also has a debt/capital ratio of 44.31% and a dividend yield of 6.74%.
IdaCorp, Inc. (IDA) is engaged in generation, transmission and sale of electric energy primarily in southern Idaho, eastern Oregon and northern Nevada. IDA holds a Zacks Rank #2 (Buy) and has a current ratio of 2.26. The company also has a debt/capital ratio of 46.51% and a dividend yield of 3.19%.
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GOLDMAN SACHS (GS): Free Stock Analysis Report
BROOKFIELD INFR (BIP): Free Stock Analysis Report
COPEL-ADR PR B (ELP): Free Stock Analysis Report
TERRAFORM POWER (TERP): Free Stock Analysis Report
IDACORP INC (IDA): Free Stock Analysis Report
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