Utility stocks are on the move, so this may be an ideal time to jump into or add to an existing position.
Whether you’re an optimist or a pessimist, it would be silly not to account for the possibility that the U.S. is headed into a recession. True, inflation improved in December, which suggests that a recession is anything but a sure thing.
Many CEOs surveyed by the Wall Street Journal say they are expecting a recession this year. The World Bank is warning about the possibility of a recession spreading around the globe.
Utility stocks represent one of the most resistant industries to recessionary pressures because their earnings largely stay consistent, regardless of if the economy is in a boom or bust cycle.
So many investors will leap out of growth and value stocks and shift into utilities stocks as a safety net if they feel like the market is going to suffer.
It’s a sound strategy, assuming that you’re also picking top-rated utility stocks. That’s where my Portfolio Grader comes in. The Portfolio Grader assigns stocks an “A” through “F” grade based on earning performance, analyst sentiment, dividend history, momentum and qualitative measurements.
These are seven top-rated utility stocks that all have an “A” or “B” grade in the Portfolio Grader.
| CWEN | Clearway Energy | $34.32 |
| ET | Energy Transfer | $12.67 |
| LNG | Cheniere Energy | $156.51 |
| AEE | Ameren Corporation | $155.57 |
| AEP | American Electric Power | $94.84 |
| ATO | Atmos Energy | $114.74 |
| AES | The ACS Corporation | $27.86 |
Clearway Energy (CWEN)
Clearway Energy (NYSE:CWEN) operates in the solar and wind generation space.
It doesn’t give you the massive kind of earnings that an oil and natural gas producer provided in 2022. But as a wind and solar power provider, Clearway has been relatively consistent over the last year. As demand grows for more green energy alternatives, utility stocks like Clearway will be best positioned to profit.
The New Jersey-based company is pretty small with a market capitalization of less than $7 billion and revenues in the last quarter of only $340 million. But it’s also pretty affordable, trading at a trailing price-earnings ratio of 7 and a price-book ratio of less than 2. And for income investors, CWEN has an attractive dividend yield of 4.2%.
CWEN stock has a “B” rating in the Portfolio Grader.
Energy Transfer (ET)
Energy Transfer (NYSE:ET) is responsible for transporting roughly 30% of crude oil and gas in the U.S., using 120,000 miles of pipelines that stretch across 41 states.
Not only that, but the company is continuing to grow. It’s building a Lake Charles LNG export terminal in Louisiana and signed several sale and purchase agreements with liquified natural gas buyers. That should help ET, which is up 37% over the last 12 months, to continue to bring in profits in 2023.
Earnings for the third quarter included $22.94 billion in revenue and earnings per share of 35 cents. Analysts were expecting $24.04 billion and EPS of 26 cents making it one of the utility stocks to watch this year.
Don’t overlook ET’s generous dividend yield of more than 8%. ET stock has an “A” rating in the Portfolio Grader.
Cheniere Energy (LNG)
Cheniere Energy (NYSEAMERICAN:LNG) is another LNG stock – that’s apparent from the ticker – but there are some distinct differences between it and Energy Transfer.
While the latter has much of its operations in the U.S., Cheniere is making serious money in Europe. The company shipped 70% of its production to European customers during 2022 as Moscow cut Europe off from Russian gas in retaliation for the West imposing sanctions to punish Russia’s invasion of Ukraine.
Energy supplies could get even tighter this year as China begins reopening from its Covid lockdowns. Should the Chinese economy shift back into high gear, you can expect energy prices to also increase – and so would Cheniere’s profits.
LNG stock gets an “A” rating in the Portfolio Grader.
Ameren Corporation (AEE)
Ameren Corporation (NYSE:AEE) is a gas and electric delivery company with operations in Illinois and Missouri. It provides service to 2.4 million electric customers and 900,000 natural gas customers.
Ameren doesn’t provide amazing returns – the stock is relatively flat over the last year, although its shown a nice 15% return since October as recessionary fears realty took hold in the market.
Even so, there’s plenty to like here. The forward price-earnings ratio of 20 is reasonable, as well as the price-book ratio of 2.2.
Cautious investors will also appreciate that AEE stock has a beta of 0.5, which means that the stock will move slower than the market – that will give you plenty of time to make an adjustment should the market tumble more than you expect.
Earnings in the third quarter included revenue of $2.22 billion, which was a 28.5% increase from a year ago. Ameren also beat analysts’ expectations of $1.89 billion in revenue, and beat EPS expectations by a penny by reporting $1.74 per share. This is definitely one of the utility stocks worth putting on your watch list.
AEE stock has a “B” rating in the Portfolio Grader.
American Electric Power (AEP)
American Electric Power (NYSE:AEP) is another flavor of utility stock. AEP stock will get you exposure to 11 states stretching from West Virginia to Texas. AEP has 5.5 million customers, and its transmission network of 40,000 miles is the largest in the nation.
AEP has had much the up-and-down year – the stock chart is very similar to Ameren’s. But its return over the last 12 months is a strong 8%, and that includes a gain of 16% since October.
AEP is also fairly priced with a forward P/E of 18.2 and a P/B ratio of just 2. And you can’t forget the dividend yield of 3.4% as an added bonus.
AEP stock probably won’t increase too much in the next year – the consensus price target is only 8% higher than the current stock price. But if you’re worried about a sharp economic downturn, American Electric Power can keep your money warm. This surly is one of the utility stocks to buy now.
AEP stock has a “B” rating in the Portfolio Grader.
Atmos Energy (ATO)
Based in Dallas, Atmos Energy (NYSE:ATO) specializes in natural gas delivery. It’s the nation’s largest natural gas-only distributor, serving 3 million customers in eight states, stretching from Virginia to Colorado.
The stock is up 11% in the last year, but I’m most struck by the company’s resilience in the face of adversity. Shortly after the Christmas holiday, Atmos asked its customers in Texas to curb natural gas usage during a winter freeze. Texas Gov. Greg Abbott ordered an investigation of the company, and the stock price took a 5% hit.
But since then, smart investors realized that ATO stock was on sale and the stock made up – and then some – all the gains it lost over the Christmas holiday.
Atmos stock is well priced with a price-earnings ratio of 19 and a beta of 0.6. It has a “B” rating in the Portfolio Grader.
The AES Corporation (AES)
If you’re looking for a utility stock with global reach, then The ACS Corporation (NYSE:AES) is the stock for you. AES is based in Virginia, but generates and distributes power in 15 countries.
In the U.S., its major subsidiaries are AES Ohio and AES Indiana. It also has properties in Argentina, Brazil, Chile, the U.K., Bulgaria, the Netherlands, Jordan, Kazakhstan, Vietnam and the Philippines.
In December, AES and Air Products (NYSE:APD) announced a $4 billion joint venture to build a hydrogen plant, using solar and wind power to manufacture the hydrogen plant in Texas.
IT would be the largest facility in the U.S. powered by wind and solar. The planned construction takes advantage of a law passed in the U.S, last year that makes tax incentives available for clean-power projects.
That should keep the money flowing through AES’s coffers. The company reported beats on both top and bottom lines in the third quarter, with revenue of $3.63 billion and EPS of 63 cents beating expectations of $3.05 billion and EPS of 53 cents.
AES stock has a “B” rating in the Portfolio Grader.
On the date of publication, Louis Navellier had a long position in LNG. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.