Utilities witnessed an even harsher fall amid broader markets’ sell-off. However, utilities outperformed the S&P 500 in 2018. Their stable stock price movements and higher dividend yields stood out amid market volatility, particularly in the last two months. Including dividends, utilities at large returned more than 1%, while broader markets returned -11% in 2018.
In this series, we’ll discuss analysts’ favorite utility stocks from the S&P 500 based on their “buy” ratings. The following chart shows four utility stocks with the most “buy” ratings among their peers.
NRG Energy (NRG) has the most “buy” ratings as of December 26. About 90% of the analysts tracking NRG Energy have rated the stock as a “buy.”
Among analysts’ favorite utility stocks mentioned above, NRG Energy has the highest implied gain of 23% for the next 12 months based on its median target price. These four utilities are different based on sizes and operational aspects. NRG Energy, one of the smallest components of the Utilities ETF (XLU), has a market capitalization of $10.8 billion. The largest utility, NextEra Energy (NEE) has a market capitalization of $83.2 billion.
The Fed delivered four quarter-point interest rate hikes in 2018—the most since it started increasing the rates in December 2015. Rising interest rates are usually considered negative for utilities. Interestingly, the “widow-and-orphan” utility stocks (VPU) haven’t just beat broader markets in 2018. In the last three years, broader utilities have returned 38%, including dividends, while the S&P 500 has returned 25%.