In this article, we will take a look at the 10 Best Electric Utility Stocks To Invest In.
Utilities have historically been seen as defensive assets, so the combination of strong economic growth, technological excitement, and higher bond yields has created an unusual backdrop for their recent outperformance. In 2023, the U.S. power and utilities sector made significant strides in decarbonization, setting new records in solar power deployment and energy storage, and enhancing grid reliability and flexibility. The sector experienced mixed fundamentals, with mild weather leading to a slight decline in electricity sales. Wholesale electricity prices fell alongside lower natural gas costs, yet high capital expenditures for grid modernization and decarbonization, along with rising interest rates, contributed to potential increases in customer bills.
In 2024 however, the utility sector seems to have outperformed the broader market, diverging from its typical sensitivity to long-term interest rates. Jefferies analysts, in a report released on September 19, attributed this outperformance to AI-related growth opportunities and the sector’s defensive nature amid a softening economy. With falling rates, rising electricity usage, and expectations for increased data center demand linked to AI, the typically stable utility stocks have seen an unprecedented rally. This trend has driven gains in ETFs and mutual funds centered on utilities, including the $18 billion Utilities Select Sector SPDR ETF, which has returned 21.77% year-to-date as of November 5, outperforming many other SPDR sector funds. Travis Miller, an energy and utilities strategist at Morningstar, noted:
“Utilities have rebounded sharply since their October 2023 low as the market began anticipating a shift toward lower interest rates and an increase in US energy demand. AI data centers and manufacturing growth represent the biggest sources of potential energy demand growth for utilities in decades.”
Expanding on that, Mckinsey states that the rapid adoption of digitalization and AI has sharply increased the demand for data centers in the United States. To match the current pace of adoption, data center power needs are expected to grow to roughly three times today’s capacity by 2030, rising from 3–4% of total U.S. power demand to about 11–12%. Meeting this demand will require a significant increase in electricity production, marking an unprecedented shift in the U.S., where overall power demand has been mostly flat since 2007. Data center load could represent 30–40% of all net new demand through 2030, alongside growing needs from domestic manufacturing, electric vehicles, and electrolyzers. From 2024 to 2030, electricity demand from data centers alone is projected to rise by approximately 400 terawatt-hours, with a compound annual growth rate of about 23%.
The Federal Reserve’s recent 0.5% rate cut, or 50 basis points, is anticipated to provide a boost to renewable energy developers and project sponsors. According to Mona Dajani, partner and global co-chair of energy, infrastructure, and hydrogen at law firm Baker Botts, the start of a rate-cutting cycle “will jumpstart projects.” She noted the following about renewable initiatives:
“They’re very sensitive to the cost of capital, particularly for capital-intensive technologies like offshore wind, clean hydrogen, carbon capture, and solar [plus] storage.”
Dajani further noted that the market expects the Fed to reduce rates by a total of 100 basis points by year-end, which “would support the growth of the domestic supply chain for clean energy, easing the financing and construction of new facilities for solar, batteries, EVs, and wind.”
A row of utility poles and power lines, showing the reach of the electric utility operations.
Our Methodology
To create our list, we reviewed the stock holdings of the Utilities Select Sector SPDR ETF. We then selected the top 10 electric utility stocks according to the number of hedge funds holding positions in each. The list is ranked in ascending order of hedge fund interest, as of Q2 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10. American Electric Power Company, Inc. (NASDAQ:AEP)
Number of Hedge Fund Holders: 35
American Electric Power Company, Inc. (NASDAQ:AEP), headquartered in Columbus, Ohio, provides safe, reliable, and affordable electricity to 5.6 million customers across 11 states. The company operates the largest electric transmission system in the U.S., spanning over 40,000 miles.
Positioned to leverage the renewable energy trend, American Electric Power Company, Inc. (NASDAQ:AEP) aims to grow its renewable energy portfolio at an annual rate of 15-20%. By 2033, it plans to add up to 8,982 megawatts of wind and 7,470 megawatts of solar energy.
On October 23, AEP announced a quarterly dividend of $0.93 per share (annualized at $3.72), marking a 4.5% increase from its previous $0.89 dividend. The dividend is payable on December 10, 2024, to shareholders of record as of November 8, with an ex-dividend date of November 7.
BMO Capital Markets raised its price target for AEP to $114 from $109 on October 3, reaffirming an Outperform rating. This adjustment follows a recent settlement between AEP’s Public Service Company of Oklahoma (PSO) and other parties, allowing PSO a net rate increase of approximately $119.5 million, which is about 52% of its requested $231.2 million increase.
9. CMS Energy Corporation (NYSE:CMS)
Number of Hedge Fund Holders: 35
CMS Energy Corporation (NYSE:CMS), Michigan’s largest utility company, provides natural gas and electricity to 68% of the state’s residents through its main subsidiary, Consumers Energy.
On November 5, Jefferies initiated coverage of CMS Energy Corporation (NYSE:CMS) with a Buy rating and a $76 price target, indicating a potential total shareholder return of about 15%. Jefferies projects CMS Energy to achieve a 7.5% CAGR in earnings per share, exceeding the company’s guidance of the “high end” of 6-8%. The firm also expects a strong funds-from-operations (FFO) to debt ratio of 15%, underscoring CMS Energy’s solid financial position. Jefferies highlights the utility’s extensive Michigan footprint and infrastructure replacement needs as factors supporting a reliable, long-term investment outlook.
In the third quarter of 2024, CMS Energy Corporation (NYSE:CMS) posted strong financial results, with adjusted EPS rising to $2.47, a $0.41 increase year-over-year. The company reaffirmed its 2024 EPS guidance of $3.29 to $3.35 and introduced its 2025 EPS outlook at $3.52 to $3.58. Additionally, CMS announced plans to submit a 20-year renewable energy plan to support Michigan’s clean energy goals, and its CEO emphasized a $7 billion roadmap to enhance grid reliability as a unique advantage.
8. Evergy, Inc. (NASDAQ:EVRG)
Number of Hedge Fund Holders: 36
Evergy, Inc. (NASDAQ:EVRG), created in 2018 from the merger of Great Plains Energy and Westar Energy, serves 1.7 million customers across Kansas and Missouri, with over 40 power plants providing a generating capacity of 16,000 megawatts.
On October 29, Mizuho initiated coverage on Evergy, Inc. (NASDAQ:EVRG) with an Outperform rating and a $67 price target. Mizuho’s analysis indicates that Evergy’s shares are trading at about a 12% P/E discount relative to its peers, with the potential to narrow to a low-single-digit discount in the near term and reach peer-level valuations over the long term. According to the firm, Evergy, Inc. (NASDAQ:EVRG) plans to grow its rate base at a 6% CAGR through 2028, supporting EPS growth of 4%-6% through 2026 without needing additional equity. Mizuho also noted potential for additional capital expenditure, particularly in power generation, to meet the rising demand from data centers and manufacturing in Kansas and Missouri.
By the end of Q2 2024, 36 hedge funds tracked by Insider Monkey held stakes in Evergy, Inc. (NASDAQ:EVRG), up from 35 in the previous quarter, with total holdings exceeding $1.22 billion.
Artisan Value Income Fund stated the following regarding Evergy, Inc. (NASDAQ:EVRG) in its first quarter 2024 investor letter:
“In Q1, we added two utilities to the portfolio: Alliant Energy and Evergy, Inc. (NASDAQ:EVRG). Evergy serves more than 1.7 million customers in Kansas and Missouri. In addition to the aforementioned dynamics weighing on utilities share prices, Evergy had two key rate cases in 2023, one in Kansas and the other in Missouri, that presented risk for investors. The Missouri case went better than expected, but the returns allowed by the Kansas regulator were punishingly low. Though Evergy operates in a subpar regulatory environment, the utility is a good operator, with strong customer satisfaction scores, below-average capex needs and a clean balance sheet. The regulatory environment may improve at some point, but even if it does not, Evergy trades for just 13X 2024 earnings, which is below average relative to its history and peers— and pays a dividend yielding 4.7%.”
7. Duke Energy Corporation (NYSE:DUK)
Number of Hedge Fund Holders: 37
Duke Energy Corporation (NYSE:DUK) is a leading U.S.-based electricity and natural gas utility holding company, serving 8.2 million customers and owning 50,000 megawatts of energy capacity.
The company is aggressively expanding its renewable energy portfolio, aiming to deploy 30 GW of regulated renewable power by 2035. Solar power is the largest segment of its renewable energy mix, with over 6,000 MW of renewable capacity through more than 260 power purchase agreements and 430 MW of owned generation, including 13 solar plants producing up to 153 MW. Additionally, Duke Energy Corporation (NYSE:DUK) received a $57 million grant from the U.S. Department of Energy in August to rebuild a critical power line in North Carolina, a project expected to generate around 550 jobs and enhance grid reliability.
On October 16, Mizuho upgraded the DUK stock rating from Neutral to Outperform and raised its price target to $121 from $116. The upgrade followed a period of volatility for Duke Energy Corporation (NYSE:DUK), particularly after recent storms in the Southeast, which Mizuho viewed as a buying opportunity. The firm also noted that Duke Energy’s current price-to-earnings (P/E) premium is modest at just 5%, not fully reflecting the company’s storm recovery mechanisms and the strength of the regional economy.
6. Exelon Corporation (NASDAQ:EXC)
Number of Hedge Fund Holders: 37
Exelon Corporation (NASDAQ:EXC), based in Chicago, is a prominent energy provider with a diversified portfolio that includes nuclear, solar, wind, and natural gas generation assets. The company is also involved in energy distribution and transmission through its various subsidiaries.
In its third-quarter 2024 financial results, Exelon Corporation (NASDAQ:EXC) reported strong performance despite challenging weather conditions. The company achieved a GAAP net income of $0.70 per share and adjusted operating earnings of $0.71 per share, reaffirming both its full-year earnings guidance and long-term growth targets. ComEd, a key operating unit, saw significant increases in both GAAP and adjusted earnings, driven by favorable rate adjustments and regulatory returns. However, PECO experienced a decline in earnings due to rising expenses, while BGE maintained stable performance. Exelon’s management remains confident in its financial outlook, continuing to project earnings growth in line with its target of 5-7% annually through 2027.
The company is committed to infrastructure investment, with $34.5 billion allocated for energy infrastructure improvements. Additionally, Exelon is pursuing higher natural gas distribution rates in Delaware to fund these infrastructure investments.
As of the second quarter of 2024, 37 hedge funds held stakes in Exelon Corporation (NASDAQ:EXC), up from 28 in the previous quarter, according to Insider Monkey.
5. The AES Corporation (NYSE:AES)
Number of Hedge Fund Holders: 46
The AES Corporation (NYSE:AES), based in Texas, operates across 14 countries and has evolved from a consulting firm into a major player in electricity generation and distribution. The company owns and manages power plants and utilities that generate electricity from a diverse mix of sources, including coal, gas, hydro, wind, solar, and other renewable energy sources.
For the third quarter, The AES Corporation (NYSE:AES) delivered mixed results, beating earnings expectations while missing revenue targets. The company reported adjusted earnings per share of $0.71, exceeding the analyst consensus of $0.59. However, revenue totaled $3.29 billion, falling short of the forecasted $3.46 billion. The company attributed the revenue miss to lower margins in its Energy Infrastructure segment and severe drought conditions that affected its Renewables business in South America. Despite the shortfall, AES reaffirmed its full-year 2024 adjusted EPS guidance range of $1.87 to $1.97, in line with the $1.92 consensus, and expects to achieve results in the upper half of the range.
On September 19, Mizuho reiterated its positive view on AES, maintaining an Outperform rating and a price target of $24. This outlook follows AES’s announcement of the sale of a 30% stake in its Ohio utility. Valued at approximately 1.8 times the Enterprise Value/Rate Base, the deal is part of AES’s broader $3.5 billion asset sale program. With this transaction, The AES Corporation (NYSE:AES) has divested $2.7 billion of assets since 2023, and the proceeds will be used to reduce debt at the AES Ohio holding company, which currently carries around $800 million in debt, impacting the company’s cash flow. The sale is also expected to provide equity financing for upcoming growth projects at the Ohio utility.
4. NRG Energy, Inc. (NYSE:NRG)
Number of Hedge Fund Holders: 56
NRG Energy, Inc. (NYSE:NRG) is a major player in the energy sector, involved in the production, sale, and distribution of energy and related services. As one of the largest retail energy providers in the U.S., it serves over 6 million customers. Additionally, the company operates a substantial 13 gigawatts of power generation capacity, including coal, gas, and oil-based plants.
NRG Energy, Inc. (NYSE:NRG) is expected to double its earnings this year, with the Electric Reliability Council of Texas (ERCOT), which manages the state’s electricity grid, forecasting significant growth in power demand. ERCOT anticipates over 60 gigawatts of load growth by 2030.
On September 30, BMO Capital raised its price target for NRG Energy, Inc. (NYSE:NRG) from $88 to $90, while maintaining a Market Perform rating on the stock. This adjustment follows NRG’s announcement of a 5% upward revision to its FY24 EBITDA midpoint outlook, which surpasses both the analyst’s estimate by 2.5% and the consensus estimate by 4.3%. Additionally, the company raised its CFO and FCFbG projections by 5%, with the FCFbG conversion ratio remaining stable at around 55-58%.
3. Constellation Energy (NASDAQ:CEG)
Number of Hedge Fund Holders: 71
Constellation Energy (NASDAQ:CEG) supplies energy products, including natural gas and related services, across North America and owns the largest fleet of nuclear power plants in the U.S., generating 10% of the nation’s carbon-free electricity.
On September 20, Barclays reaffirmed its Overweight rating on Constellation Energy (NASDAQ:CEG) with a $211 price target, spotlighting a new 20-year power purchase agreement with Microsoft to revitalize Three Mile Island Unit 1, soon to be renamed the Crane Clean Energy Center. This agreement is projected to increase Constellation’s base EPS growth rate from at least 10% to 13% annually from 2024 through 2030, potentially boosting EPS above $15 by 2028 as the project completes.
In its third-quarter 2024 earnings report, Constellation Energy (NASDAQ:CEG) posted significant gains, driven by efforts to expand its clean energy portfolio. The company recorded a GAAP net income of $3.82 per share, up from $2.26 a year prior, and adjusted operating earnings of $2.74 per share, an increase from $2.13 in Q3 2023. Additionally, the company raised its full-year 2024 adjusted earnings guidance to between $8.00 and $8.40 per share.
2. NextEra Energy, Inc. (NYSE:NEE)
Number of Hedge Fund Holders: 73
NextEra Energy, Inc. (NYSE:NEE) is a leading utility company in North America, engaged in generating, transmitting, distributing, and selling electricity. The company is also active in energy commodity trading and operates electric generation facilities in wholesale energy markets.
On October 25, Goldman Sachs reinforced its positive outlook on NextEra Energy, Inc. (NYSE:NEE) by raising the 12-month price target from $86 to $92 and maintaining a Buy rating. Goldman Sachs highlighted the company’s solid positioning in renewable energy development, noting that NextEra Energy, Inc. (NYSE:NEE) now needs to add just 1.7 gigawatts per quarter to achieve the midpoint of its target range—down from the roughly 3 GW added each of the last two quarters. This progress aligns with Goldman Sachs’ forecast of a 10% annual EPS growth rate for NextEra Energy through 2027.
In its third-quarter results, NextEra Energy, Inc. (NYSE:NEE) reported earnings that exceeded expectations, with net income rising to $1.852 billion, or $0.90 per share, compared to $1.219 billion, or $0.60 per share, a year prior. Adjusted earnings reached $2.127 billion, or $1.03 per share, while revenue grew by 5.5% to $7.567 billion from $7.172 billion in Q3 of the previous year.
1. Vistra Corp (NYSE:VST)
Number of Hedge Fund Holders: 92
Vistra Corp (NYSE:VST), a Texas-based, vertically integrated energy company, operates a diverse portfolio that includes electricity generation, wholesale energy sales, fuel production, and logistics. Vistra Corp (NYSE:VST) provides electricity and natural gas to residential, commercial, and industrial clients.
Amid rising clean energy demand, especially from sectors like AI and data centers, Vistra Corp (NYSE:VST) is well-positioned to benefit. Back in March, the company completed its acquisition of Energy Harbor, enhancing its nuclear capacity by an additional 4,000 megawatts and expanding its customer base by around 1 million. Vistra Corp (NYSE:VST) is also investing significantly in renewable energy, with active projects in solar and battery storage. In May, the company announced plans to add up to 2,000 MW of natural gas capacity in Texas, aimed at improving grid stability as demand increases with economic growth and sectoral electrification.
JPMorgan initiated coverage on Vistra Corp (NYSE:VST) on October 17, assigning an Overweight rating and a price target of $178. The firm emphasized Vistra’s strong positioning within the Texas power market, suggesting that it could benefit from natural gas production growth and energy market volatility. With nearly half of its gas generation operating in the ERCOT market, Vistra Corp (NYSE:VST) stands to profit from intra-day price surges driven by factors such as heat waves and evening power demands.
Here’s what Fidelity Investments said about Vistra Corp. (NYSE:VST) in its Q2 2024 investor letter:
“An overweight stake in utility company Vistra Corp. (NYSE:VST) (+24%) was the top individual relative contributor. In Q1, the Texas-based independent power producer completed its acquisition of Ohio-based nuclear fleet operator Energy Harbor. The new Vistra, with its expanded geographic footprint, is in strong position to gain from the buildout of AI-capable data centers, which require enormous amounts of power to run. It is expected that local grids in the U.S. will need to invest heavily over the coming years to improve their power infrastructure and meet growing demand. In the nearer term, firms may choose to contract with independent power producers, like Vistra, rather than rely on the local provider.”
While we acknowledge the potential of VST, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than VST but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
