Cadiz Inc. (CDZI), Fluence Energy Inc. (FLNC), and Enel Chile SA (ENIC) are among the top-performing utilities stocks this month, each providing investors with returns in excess of 120% in the past year.
However, the Utilities Select Sector SPDR ETF (XLU), which can serve as a benchmark for the sector, has fallen by 12% in the past 12 months, compared with the Russell 1000 index’s 4% gain over the same period.
Below, we look at the top utilities stocks in the categories of best value, fastest growth, and most momentum. All data is as of June 5.
Best Value Utilities Stocks
These are the utilities stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you’re paying less for each dollar of profit generated.
Source: YCharts
- Enel Chile: This is a Chilean-based electricity provider. The company creates electricity from solar, wind, and geothermal power plants.
- Pampa Energia SA: An integrated energy company based in Argentina operating hydroelectric plants, thermal plants, and wind farms. The company also explores and produces natural gas, oil, and various petrochemicals.
- Genie Energy Ltd.: An energy provider that supplies electricity and natural gas for residential and business customers. The company also operates a solar energy business segment. In late March, Genie Renewables acquired the rights to a 6.25-megawatt solar generation site in upstate New York. On May 9, the company released its first-quarter earnings, which included an 89% increase in total revenue compared with the same period last year for the company’s renewables segment. The sales growth was due to the addition of multiple solar energy projects.
Fastest-Growing Utilities Stocks
These are the top utilities stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and most recent quarterly YOY earnings-per-share (EPS) growth.
Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with a quarterly EPS or revenue growth of more than 1,000% were excluded as outliers.
| Fastest-Growing Utilities Stocks | ||||
|---|---|---|---|---|
| Price ($) | Market Cap ($B) | EPS Growth (%) | Revenue Growth (%) | |
| Capital Power Corp. (CPX.TO) | CA$45.60 | CA$5.3 | 148 | 153 |
| PNM Resources Inc. (PNM) | 46.45 | 4.0 | 237 | 23 |
| Edison International (EIX) | 66.80 | 25.6 | 268 | 0 |
Source: YCharts
- Capital Power Corp.: It owns and operates 29 renewable energy facilities located throughout North America. On May 1, the company released its first-quarter earnings and announced the appointment of Avik Dey as president and chief executive officer (CEO). Net income in the first quarter more than doubled from the year before.
- PNM Resources Inc.: This is an energy holding company that provides energy services for homeowners and businesses throughout Texas and New Mexico. PNM Resources announced an extension through July 20 for its planned merger with Avangrid Inc. (AGR), a clean energy company. The company’s consolidated net earnings more than tripled in the first quarter compared with the first quarter of 2022. This was due to heightened demand and higher market power prices.
- Edison International: An electricity distribution company. Edison International reported first-quarter earnings on May 2. Net income more than tripled compared with the previous year’s period due to increased operating income.
Utilities Stocks With the Most Momentum
These are the utilities stocks that had the highest total return over the past 12 months.
| Utilities Stocks With the Most Momentum | |||
|---|---|---|---|
| Price ($) | Market Cap ($B) | 12-Month Trailing Total Return (%) | |
| Cadiz Inc. (CDZI) | 5.07 | 0.4 | 129 |
| Fluence Energy Inc. (FLNC) | 24.60 | 2.9 | 128 |
| Enel Chile S.A. (ENIC) | 2.99 | 4.1 | 123 |
| Russell 1000 | N/A | N/A | 4 |
| Utilities Select Sector SPDR ETF (XLU) | N/A | N/A | -12 |
Source: YCharts
- Cadiz: A water treatment company that offers clean water resources for agricultural development.
- Fluence Energy: This is an energy storage company that offers artificial intelligence (AI)-enabled renewable products. On June 5, HSBC raised its price target for the company to $31 from $26 and maintained its buy rating. Following this news, the share price for Fluence rallied nearly 10% to as high as $26.87.
- Enel Chile: See company description above.
The Impact of Interest Rates on Utilities Stocks
Those who invest in utilities stocks should understand how fluctuations in interest rates can influence their performance. Typically, changing interest rates affect this sector in two ways: competition with fixed-interest securities and the cost of servicing debt.
Competition with fixed-interest securities: Generally, those who invest in this group prefer yield over growth. Therefore, when interest rates are high, these investors favor fixed-interest securities over utilities stocks, as the former provide attractive risk-free returns.
For example, if the U.S. 10-year Treasury note and a utilities stock both yield 3%, risk-averse investors would invest in the Treasury note because it offers the same yield but isn’t affected by company or market risk. However, these investors would favor utilities stocks over fixed-interest securities when interest rates are low or falling because the utilities stocks offer greater returns while typically displaying lower volatility than stocks in other sectors.
Cost of servicing debt: Utilities companies carry high debt levels to build, maintain, and upgrade essential infrastructure such as electricity grids, gas pipelines, water systems, and renewable energy sources. Therefore, servicing that debt becomes more difficult when interest rates rise. If utilities companies are unable to pass extra financing costs on to customers, they may be partially borne by investors.
Advantages of Utilities Stocks
Most utilities companies pay investors steady dividends, as they form part of a regulated industry with highly predictable cash flows. In addition, ongoing demand for their services, irrespective of the economy’s health, makes them an attractive safe-haven investment during periods of economic uncertainty, such as during a recession or downturn.
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As of the date this article was written, the author held a long position in ENIC.