Especially during these difficult circumstances, investors seeking shelter and reliable growth opportunities should consider the best utility stocks to buy. Fundamentally, power distribution features no substitute in a digitalized economy. If you really want to look at the cynical argument, bad things happen when the lights go out involuntarily.
The other factor that helps drive the case for the best utility stocks to buy is indispensability. No matter what’s going on in the economy, people must have access to power. True, service users often bitterly complain about being price gouged. But the harsh reality is that speaking out doesn’t really amount to much.
This dynamic segues into the de facto monopoly that utility firms impose on the public. Given the high barriers to entry, competition is broadly scarce. And because of this unfavorable profile (at least from the consumers’ perspective), power companies can keep raising prices. Though it stinks for the ones paying the bills, it makes for an intriguing backdrop for the best utility stocks to buy.
With that in mind, here are seven best utility stocks to buy now.
Sempra Energy (SRE)
Arguably, most Americans know California represents the economic engine of the U.S. According to various sources, if the Golden State were its own country, it would rank as the fifth-biggest economic power.
But what perhaps fewer people realize is that by segment, Southern California is a massive entity in its own right. According to data from UCLA Anderson Forecast, Southern California contributes $1.6 trillion worth of gross domestic product, or GDP. If the region were its own country, it would rank as the 13th largest – even bigger than Brazil.
Now, why bother mentioning these quiz show talking points? Primarily, to demonstrate that San Diego-based Sempra Energy (NYSE:SRE) is one of the best utility stocks to buy now. Like other utilities, Sempra is no stranger to controversy. Invariably, though, the company represents a key cog of the unofficial sunshine tax.
If you want to live in California, you must pay the piper. In this case, the piper is Sempra. Unless you believe California will somehow not be the economic engine anymore, SRE represents a wise wager.
Consolidated Edison (ED)
Although California represents the undisputed economic king of the U.S., New York nevertheless brings intense competition to the table. Specifically, New York City is the largest city in the nation. It also commands the country’s biggest consumer base.
Further, with a gross metropolitan product (GMP) of $1.66 trillion, NYC’s economy “produces more value than the entire gross state product of Texas. If NYC was a country, its economy would be the tenth-largest in the world, beating out the entire economies of countries like Canada and Russia.”
This powerful backdrop facilitates a strong case that Consolidated Edison (NYSE:ED) stands among the best utility stocks to buy now. Mainly, it comes down to geographical catalysts, as Con Edison serves NYC and Westchester. As well, it basically follows the Sempra philosophy: The consumers can complain, but they can’t do much about rising prices.
Of course, with such a robust worker base, most of Con Edison’s users shouldn’t have a problem paying up.
Duke Energy (DUK)
Headquartered in Charlotte, North Carolina, Duke Energy (NYSE:DUK) epitomizes the best utility stocks to buy for several reasons. First, the company’s fundamental metrics bring much excitement to the table – at least, as much excitement as utilities can bring. For instance, Duke features a forward yield of 3.67%. Combined with DUK stock’s year-to-date (YTD) increase of 6.2%, investors of all stripes should consider owning it, especially during these wild times.
Second, Duke enjoys strong longer-term profitability metrics. For instance, it has a net margin of 14.5%, which is better than the 8.2% median margin for the industry. To be fair, Gurufocus declares DUK “modestly overvalued.” However, I would have to disagree since utilities tend to have captive audiences. Keep in mind that in the second quarter of 2022, Duke’s revenue grew 16% against the year-ago period.
Such robust expansion could continue because of Duke’s geographical leverage. Featuring a heavy presence in the Carolinas, the region is attracting millennials. Demographic-wise, it’s possible DUK could be undervalued.
Pinnacle West Capital (PNW)
An investor-owned electric utility based in Phoenix, Arizona, Pinnacle West Capital (NYSE:PNW) may be one of the best utility stocks to buy, again for geographic and demographics-related reasons. According to its website, Pinnacle West – along with its subsidiary Arizona Public Service – provides “nearly 1.3 million customers with clean, reliable and affordable energy.”
Interestingly, Pinnacle declared that it’s “committed to power Arizona’s future with electricity that is 100% clean and carbon-free by 2050.”
Now, unlike Duke Energy above, Gurufocus considers Pinnacle to be modestly undervalued. Key highlights include price-to-tangible-book and price-to-operating-cash-flow ratios pinging 1.55 and 7.65 times, respectively. These figures compare favorably to the industry median of 1.97 and 9.3 times for the respective metrics.
However, the broader catalyst for PNW being one of the best utility stocks to buy is migration trends. Because of the number of millennials moving to Phoenix, 23% of the city’s population comprises of this much-discussed age cohort.
CenterPoint Energy (CNP)
Ask random millennials about their migration destination of choice and chances are, you’ll hear Texas enter the frame frequently. Data shows the Lone Star State lands tops for attracting young workers tired of the costs of living associated with Los Angeles or New York City. But within Texas, Houston consistently rates as a favorite destination for millennials on the move.
Given this reality, investors ought to consider CenterPoint Energy (NYSE:CNP) as one of the best utility stocks to buy. Per its website, “CenterPoint Energy’s electric transmission and distribution unit serves more than 2.2 million customers in a 5,000 square-mile area that includes Houston, the nation’s fourth largest city and a consistently growing market.”
As well, the company has a forward yield of 2.1%. While not the most generous payout, CNP stock has gained more than 18% since the start of this year. In combination, that’s an attractive profile. Also, CenterPoint features solid profitability metrics, including a 16.3% return on equity that’s above the industry median of 8.3%.
DTE Energy (DTE)
Those willing to take some risk should consider DTE Energy (NYSE:DTE). Based in Detroit, DTE Energy is a diversified energy firm involved in the development and management of sector-related businesses and services. Per its website, the company’s operating units include “an electric company serving 2.3 million customers in Southeast Michigan and a natural gas company serving 1.3 million customers in Michigan.”
As well, “the DTE portfolio also includes non-utility businesses focused on industrial energy services, renewable natural gas, and energy marketing and trading.” Moreover, the company features a forward yield of 2.63%. Combined with DTE stock’s YTD increase of 13.3%, the investment opportunity has attracted inflation-saddled market participants.
Moving forward, DTE may benefit from demographic trends. To be fair, millennials aren’t exactly raring to move to Michigan at the moment. In terms of pure migration, Michigan lands somewhere in the middle. However, the state features some of the lowest housing costs. Therefore, DTE could become a downwind beneficiary.
WEC Energy (WEC)
For those willing to look well into the future, WEC Energy (NYSE:WEC) might make sense for the best utility stocks to buy. Based in Milwaukee, Wisconsin, WEC Energy provides electricity and natural gas to 4.4 million customers across four states.
On paper, WEC stock offers an intriguing profile for risk-tolerant investors. Primarily, shares feature a 2.74% forward yield. To be clear, this is below the utilities sector average of 3.75%. However, WEC also put up a very solid 10.7% YTD performance. The combination of the two metrics has made for an enticing package for those trying to mitigate inflationary pressures.
Financially, WEC Energy is decent. Gurufocus considers WEC stock to be “fairly valued.” Arguably the best highlight centers on the company’s profitability metrics. For example, it has a net margin of 15.2%, which is above the industry median of 8.2%.
Moving forward, WEC could be attractive Milwaukee is in the middle of boosting the city’s image to entice young professionals. Should the initiative prove successful, WEC may enjoy substantial long-term returns.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.