Which Utilities Companies Hold Major Upside?

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Both oil and natural gas prices have been off the charts in recent weeks, following the announcement of major exporting countries – Saudi Arabia and Russia – further extending their cuts in oil supplies until the close of the year. 

The announcement made earlier in September was a shock to the system for some analysts, and left many to reflect on the greater determination of both exporters to continue their slower output, which would further reflect in rising oil prices. 

On average, Saudi Arabia will cut around one million barrels a day, while Russia is estimated to decrease its output by roughly 300,000. 

However, rising Brent crude oil prices are nothing new to the market, and following the announcement by both countries, Brent crude price per barrel climbed to $90 – marking the first time in more than a year that prices were at these heights. Over in the United States, the West Texas Intermediate crude price was hovering around $87.51 per barrel, the highest since the start of the year. 

Demand will continue to outpace supply, and at the current rate exporting countries are cutting their output, which would further extend rising prices. However, this push and pull is nothing new, and it’s an age-old story we’ve experienced time and again in the oil and gas market. 

The question many are now pondering is whether or not this political dance would further filter through to the utilities market. With demand steadily rising, and supply remaining one of the bigger concerns for importers, where would that leave utility providers on the stock market? 

Don’t give up 

Despite earlier calls in the year that economic recovery is taking a backseat, and investors should prepare for the worst – recession – things shaped up to be somewhat less severe than what many on Wall Street expected it to be. 

However, we’re not completely out of the woods, just yet. For starters, interest rates are at their highest in more than two decades, as the Federal Reserve continues to flex their inflation-busting monetary tightening as they attempt to bring inflation back down to their core benchmark.

This has proven to open many unhealed wounds for investors, and on the back of sticky inflation, and now slowing economic activity, some market indices have fared off slightly worse than what analysts initially expected. 

One of these is the Dow Jones Commodity Index Natural Gas (DJCING) which has already faltered by 38.78% year to date, compared to the S&P 500 index, which has already climbed 16.88% this year. 

By September 12, investors were driven off the market by rising oil prices, and slower performance by tech giants. The tech-heavy Nasdaq was down 0.8% by mid-day, while the S&P 500 slid by 0.3%. The only index that experienced some improvement was the Dow Jones Industrial Average, which climbed by 88 points, on the back of improved Chevron share performance.

There’s little clarity as to what’s currently driving investor motivation, and while many are taking their chances with technology companies hope to win over investors, and consumers with flashy Artificial Intelligence (AI) product offerings. 

However, there remains a sort of seasonality around much of the stock market, and investors are cautious as they begin to plan their strategies for the remainder of the year. 

Although investors continue to seek value stocks that can prove long-term potential, especially in the current market, and while utilities aren’t without volatility, there’s a shortlist that can provide some upside potential over the coming months, and perhaps over the longer outlook. 

Constellation Energy Corporation

The Baltimore, Maryland-based utility company Constellation Energy Corporation (NASDAQ: CEG) has had quite the year on the stock market, with share performance steadily outpacing the S&P 500, and prices already up by 32%. 

The company has perhaps proven to hold improved stability throughout the uncertainty the market has experienced in recent months and is one of the few market leaders that provides a strong pay-to-earnings ratio (P/E) of 45.55. 

Financials have also proved somewhat positive, despite the company reporting a 0.35% decrease in revenue for the quarter ending June 2023. On average, the latest earnings per share performance of 3.67 showcases an attractive company evaluation. 

Cheniere Energy, Inc.

Cheniere Energy (NYSE: LNG) has held quite steady, despite seeing interesting fluctuations in share performance during the first half of the year. LNG is already up by 16% to date, and current expectations could see prices moving further north as demand continues to outpace supply, and keeping prices seemingly elevated. 

Second quarter financial performance was perhaps not the best on the books for the Houston, Texas-based liquefied natural gas company, and presented shareholders with overall weaker revenue and EPS. 

Yet, despite these declines, given the current market conditions, and perhaps the long-term outlook, based on consumption, demand, and the transition to cleaner fossil fuels, LNG showcases a possible upside that could bring much-needed diversification for investors. 

NRG Energy 

Another Houston, Texas-based contender, NRG Energy (NYSE: NRG) brings much-needed utility distribution for investors, mainly as the company holds a diverse portfolio of operations that include natural gas, oil, wind, and solar generation, and more importantly, coal and nuclear energy. 

What makes NRG attractive is its price, but more importantly, how the company has managed to make impressive improvements over the last several months, and effortlessly reclaiming investor interest. 

Currently, share prices are sitting close to $40 per share, but what’s more interesting is the 3.90% dividend yield the company recently announced during its Q2 2023 earnings and financial report. Something that has perhaps helped turn the bears into bulls, is that NRG offers diversification, not just for investors, but for the more than seven million retail customers it currently serves across the United States. 

TransAlta Corp

TransAlta (NYSE: TAC) is one of those stocks you look to bring into your portfolio if you’ve depleted all your other options, or maybe have a few extra cash lying around, and looking to make long-term commitments to a value stock that could provide significant upside. 

Firstly, for a company that holds a $2.54 billion market capitalization, you’d expect share prices to be at least impressive. However, TAC continues to trade around the $9 to $10 range, with an annual high expectation of $10.40 per share.

TAC can be considered a low-hanging fruit. For one, during its recent quarterly earnings call, the company announced a 1.69% dividend yield, and the current P/E ratio of 13.73 is quite attractive despite its low valuation. Something that gives TAC an upside, is its global presence, as the company operates in the U.S., Canada, and Australia. 

PG&E Corporation

After experiencing a slow start to the year, and eventually climbing before sliding again, PG&E Corp (NYSE: PGC) is steadily showing signs of improvement. 

One thing that has helped the company regain its sentiment in recent months is its quarterly performance, which proved somewhat significant, with revenue up by 3.36%, and net income climbing just over 14% for the quarter ending June 2023. 

PG&E is currently one of the biggest utility providers in the country and has a market capitalization of more than $43 billion. The higher interest rate environment proved to be a significant obstacle for the company, however, this didn’t completely derail share performance, which has already climbed 2.76% since the start of September, and has managed to gain 7.97% since the start of the year. 

Tough conditions and high volatility 

With the economy beginning to show signs of cooling, the coming months will prove to bring new challenges for investors, and would perhaps motivate them to rethink their forward-looking strategies. 

Ultimately, considering the unfolding developments that have taken place on the macroeconomic scale, things still can move in either direction. 

From what we’ve seen in the past, and estimating what the coming months have in store, there remains a shimmer of light with utility providers, simply because we know they often provide us with better security, and perhaps performance during turbulent waters.