In this article, we are going to discuss the 10 best utility stocks to buy now. You can also check out the 20 States With the Most Expensive Electricity In The US here.
The power and utilities industry in 2023 saw mixed outcomes. Despite a 53% year-on-year drop in natural gas prices for power generation, customer bills went up by 1.9%. This increase was due to record-breaking investments of nearly $171 billion in grid modernization and decarbonization efforts, along with rising interest rates. Overall, electricity sales dipped slightly by 1.2% year-on-year (YoY).
Looking ahead to 2024, the outlook for clean energy is bright. Forecasts predict stable electricity prices alongside a 2% growth in sales. This growth is fueled by a rise in clean energy investment, from both utility companies and the government. Investments are being directed towards renewable energy generation, with solar expected to double in capacity in 2024.
The U.S. Energy Information Administration (EIA) forecasts a significant year for solar power, with utilities planning a 30% increase in capacity by adding 31 gigawatts. Wind energy is also projected to grow by 5% or 7 gigawatts. As a result, solar and wind power are set to become the dominant sources of electricity generation in the US, potentially surpassing coal. Renewables are expected to reach 18% of total generation, while coal may fall to 17%, marking a historic milestone in the transition to cleaner energy sources.
Moreover, there is a forecast of accelerating demand for electricity in the US in the next few years. According to a report by consulting firm Grid Strategies, electricity demand forecasts for 2024 have been significantly revised upward based on filings submitted to the Federal Energy Regulatory Commission (FERC) in 2023. Grid planners now anticipate a nationwide increase of 4.7% over the next five years, which is a sharp rise from the 2.6% growth projected just last year. This rise in demand is expected to be accompanied by a substantial increase in peak demand, with forecasts indicating a growth of 38 gigawatts (GW) over the next five years.
This increase in electricity demand is driven by multiple factors. Industrial facilities, manufacturing plants, and data centers are experiencing a construction boom, with data centers in some areas like Virginia seeing unprecedented growth at 6% to 8% every year. Electric vehicles are also expected to contribute to the demand increase as BloombergNEF (BNEF) forecasts a 20% YoY increase in global battery electric and plug-in hybrid vehicle sales in 2024.
On the supply side, challenges remain. According to Senior Partner for Energy & Utilities at West Monroe, Danny Freeman, utilities are going to prioritize grid reliability and resilience in response to climate change. Extreme heat and drought are likely to continue disrupting power generation in 2024, with summer 2023’s record-breaking heat likely marking the start of a long-term trend.
The American West is facing its driest period in 1,200 years, and researchers predict a long-term pattern of aridification. These conditions can significantly reduce power output, especially during peak demand periods. Thus, the Department of Energy (DOE) awarded $3.5 billion in October 2023 to projects that will improve grid flexibility and resilience. The funding for this project is provided by the Grid Resilience Program (GRIP), created by the Infrastructure Investment Jobs Act (IIJA).
The rapid transformation of the utilities sector presents many exciting opportunities for investors. With this context in mind, let’s take a look at the 10 best utility stocks to buy now.
High-voltage power lines.
Our Methodology
To shortlist the best utility stocks, we relied on Insider Monkey’s database of 920 hedge funds as of Q1 2024 to analyze the hedge fund sentiment for each stock. We picked the utility stocks with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? 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 Best Utility Stocks To Buy Now
10. Public Service Enterprise Group Incorporated (NYSE:PEG)
Number of Hedge Fund Holders: 35
Public Service Enterprise Group (NYSE:PEG) is a significant US utility company that provides electricity and natural gas through an extensive network of power plants, pipelines, and solar generation facilities. Founded in 1903 and headquartered in Newark, New Jersey, the company operates primarily through its subsidiaries, PSE&G and PSEG.
In Q1 2024, Public Service Enterprise Group (NYSE:PEG) reported earnings of $1.31 per share. The company remains optimistic about achieving its full-year guidance range of $3.60 to $3.70 per share in operating earnings. Public Service Enterprise Group (NYSE:PEG) attributes this confidence to anticipated rate adjustments and the continued benefit of the Production Tax Credit (PTC).
Furthermore, the company is actively investing $3.4 billion in capital expenditures for infrastructure upgrades and electrification initiatives. Public Service Enterprise Group (NYSE:PEG) maintains a 5-year capital spending plan of $18 billion to $21 billion.
Moreover, analysts are bullish on Public Service Enterprise Group (NYSE:PEG), with an average price target of $74.8. Overall, 15 analysts have rated the stock a “Strong Buy,” while 6 have given a “Buy” rating to Public Service Enterprise Group (NYSE:PEG). Bank of America (BofA) sees potential for the company’s earnings per share to grow by 31 cents by 2027 if the company develops a data center campus in New Jersey.
9. Sempra (NYSE:SRE)
Number of Hedge Fund Holders: 35
Sempra (NYSE:SRE), is a North American energy infrastructure company founded in 1996. The company delivers electricity and natural gas to millions of customers across California and Texas through its Sempra California and Sempra Texas Utilities segments. Its Sempra Infrastructure segment focuses on developing new energy solutions to facilitate the transition to cleaner energy sources.
During the first quarter of 2024, earnings per share remained relatively flat year-over-year at $1.34. Despite this, Sempra (NYSE:SRE) is confident in its future, citing strong economic growth and the company’s focus on modernizing the energy grid. The company has maintained its EPS guidance of $4.60 – $4.90 for 2024 and $4.90 – $5.25 for 2025. Moreover, Sempra (NYSE:SRE) also reaffirmed its long-term EPS growth target of 6% to 8%.
Analyst expectations for Sempra Energy (NYSE:SRE) are also positive. Sempra (NYSE:SRE) has been given an average price target of $82.43, which implies an upside potential of 9.51% from the current price levels. Furthermore, the stock has a consensus rating of Buy.
Here’s what ClearBridge Investments said about Sempra (NYSE:SRE) in its Q3 2023 investor letter:
“Our two utilities Sempra (NYSE:SRE) and Edison International were also negatively impacted by rising rates, although both outperformed the utility benchmark. We maintain a large active overweight to Sempra and added opportunistically to Edison to reflect its strong fundamentals.”
As of Q1 2024, Sempra (NYSE:SRE) was held by 35 hedge funds, making it one of the best utility stocks to buy now.
8. American Water Works Company, Inc. (NYSE:AWK)
Number of Hedge Fund Holders: 36
American Water Works Company, Inc. (NYSE:AWK) is a major US water utility company. Established in 1886 and headquartered in Camden, New Jersey, this company delivers water and wastewater services to millions of residents across 14 states.
The company reported solid first-quarter earnings of $0.95 per share as compared to $0.91 in 2023, meeting expectations. American Water Works Company, Inc. (NYSE:AWK) also reaffirmed its full-year EPS guidance of $5.20 to $5.30 per share. American Water Works is progressing well with its $3.1 billion capital investment plan and recently finalized the acquisition of a wastewater treatment plant in Granite City, IL, for $86 million.
Analysts are moderately bullish on American Water Company, Inc. (NYSE:AWK) with a rating of “Moderate Buy.” The average price target for the next 12 months is $134.20, suggesting a potential upside of 2.8%.
Here’s what ClearBridge Investments said about American Water Works Company, Inc. (NYSE:AWK) in its Q3 2023 investor letter:
“At the same time, an out of favor utilities sector created an opening for us to be opportunistic. During the quarter we added American Water Works Company, Inc. (NYSE:AWK), the largest publicly traded water utility in the U.S., operating across 24 states and providing drinking water, wastewater services and other related services to 14 million customers. Continuous investments in infrastructure improvement, resiliency and water quality should drive solid growth and generate attractive regulated returns for the company for the foreseeable future. In addition, the water infrastructure market remains very fragmented, with 80% of community water systems serving a population of 3,000 or less, enabling American Water Works to continue its strategy of accretive acquisitions to bolster its growth rate.”
7. Xcel Energy Inc. (NASDAQ:XEL)
Number of Hedge Fund Holders: 36
Xcel Energy Inc. (NASDAQ:XEL) delivers electricity and natural gas across eight states in the US through its subsidiaries. The company generates power from a mix of sources, including renewables like wind and solar, alongside traditional options like coal and gas. It also distributes and transports natural gas, and invests in gas infrastructure development.
As per the Q1 2024 earnings report, Xcel Energy Inc.’s (NASDAQ:XEL) earnings per share rose to $0.88 from $0.76 a year ago. Net profit margin was recorded at 13.4%, reflecting a year-on-year increase of over 30%. The increase in net income has been due to higher recovery of infrastructure investments and lower operating expenses, partially offset by interest charges and depreciation.
The stock is rated as a Moderate Buy by analysts, with an average 12-month price target of $62.33, suggesting a potential upside of over 16.7% from its current price levels. The highest analyst forecast is $66, while the lowest is $57.
Here’s what Aristotle Capital Management, LLC, said about Xcel Energy Inc. (NASDAQ:XEL) in its Q1 2024 investor letter:
“Xcel Energy Inc. (NASDAQ:XEL), one of the largest renewable energy owners among regulated utilities, was a primary detractor during the period. Shares fell as the company’s facilities appear to have been involved in an ignition of the largest wildfire in Texas state history. As a result, insurance companies have begun filing lawsuits claiming Xcel should be held liable for damages related to the more than one million acres burned. Though the magnitude and likelihood of settlements are difficult to quantify, we believe potential payouts would be meaningfully less than the over $5 billion in market value the company lost in the days following the news. We will continue to closely monitor the situation and its impact on the company, as a full investigation is still underway. Over the long term, our conviction remains that Xcel is well positioned to benefit from increased demand for clean energy, as its service territories have what we believe to be some of the best wind and solar resources in the country.”
6. NRG Energy Inc. (NYSE:NRG)
Number of Hedge Fund Holders: 44
NRG Energy Inc. (NYSE:NRG), a North American energy and home services company, offers electricity, natural gas, and home security solutions. It generates power from various sources including coal, solar, and natural gas. This company caters to residential, commercial, and industrial customers across the US and Canada. Its well-known brands include NRG, Reliant, Direct Energy, Green Mountain Energy, and Vivint.
NRG Energy Inc. (NYSE:NRG) reported a strong Q1 2024 with a net income of $511 million, reversing a loss from the same period last year. Adjusted EBITDA climbed to $849 million during Q1, up from $646 million in Q1 2023. The company has expressed optimism about future prospects, citing strong performance and promising growth opportunities ahead.
Furthermore, NRG Energy Inc. (NYSE:NRG) successfully completed its previously announced $950 million accelerated share repurchase program, buying back shares at an average price of $50.43 per share. Additionally, it reaffirmed its commitment to capital allocation in 2024, with plans to allocate an additional $825 million towards share repurchases.
Analysts have given NRG Energy Inc. (NYSE:NRG) stock a “Moderate Buy” rating with an average price target of $87.4. The price target reflects an upside potential of over 9% from the current price levels. NRG Energy Inc. (NYSE:NRG) ranks sixth on our list of the best utility stocks to buy now.
5. The AES Corporation (NYSE:AES)
Number of Hedge Fund Holders: 45
The AES Corporation (NYSE:AES) is a global power company that generates and sells electricity through various sources like coal, gas, wind, and solar. With a portfolio exceeding 34,500 megawatts, AES has established itself as a significant player in the global energy sector since its founding in 1981. The corporation is headquartered in Arlington, Virginia.
The AES Corporation (NYSE:AES) recently declared its Q1 2024 financial results. The results were positive, with earnings per share jumping to $0.50 compared to $0.22 last year. Furthermore, The AES Corporation (NYSE:AES) revealed that it had secured a massive 1 GW solar-plus-storage deal with Amazon.
The company has reaffirmed its 2024 and long-term growth targets, including an adjusted EPS of $1.87 to $1.97 this year. In 2024, AES Corporation (NYSE:AES) anticipates adding 3.6 gigawatts (GW) of new capacity, with 92% of the required major equipment already on site.
Analysts rate the company’s stock a Moderate Buy with an average price target of $23.50, suggesting a potential upside of 27.23%. This forecast ranges from a high of $28 to a low of $19.
Of the 920 hedge funds tracked by Insider Monkey at the end of Q1 2024, the AES Corporation (NYSE:AES) was held by 45 hedge funds, making it one of the best utility stocks to buy now.