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An Investor’s Guide: A Look at the 10 Largest S&P 500 Utilities

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Utilities this year

US utilities (XLU) (IDU) have had an interesting run so far this year. Generally considered to be defensives, the utilities sector has only marginally underperformed broader markets in 2017. The Utilities Select Sector SPDR ETF (XLU) rose more than 15% year-to-date, while the SPDR S&P 500 (SPX-INDEX) (SPY) surged 18%.

In this series, we will take a look at the top ten largest utility stocks of the S&P 500 Index. We’ll discuss their recent stock performances, valuations, and price targets.

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The biggest and the smallest

At $74 billion, NextEra Energy (NEE), the Florida-based renewables giant, is the largest utility holding company by market capitalization. In 2001, NextEra Energy was the 30th utility by market capitalization at $10 billion.

Among the top ten utilities, Public Service Enterprise Group (PEG) stands at number ten with a market capitalization of approximately $27 billion.

Utilities’ smart traverse

US utilities traded strong despite three rate hikes this year. Higher interest rates are generally considered negative for utilities, as they are perceived as bond substitutes. Yield-seeking investors may turn to bonds when the interest rate is increased, ultimately putting utilities under pressure.

It should be noted that since the Fed began raising interest rates in December 2015, US utilities have outpaced broader markets. In this period, total returns from the Utilities Select Sector ETF (XLU) came in at around 41%, while the SPDR S&P 500 (SPX-INDEX) (SPY) returned 37% in the same period.

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