Utility Stocks on a Power Surge
We all need clean water from the tap and electricity fed to our homes, boom or bust, which is why utility stocks are bookmarked as safe, defensive, and long-term plays. The sector isn’t volatile or prone to disruption, so market players rotating into it from cyclical luxury brands aren’t doing it for the huge gains. They’re doing it to dodge huge losses occurring elsewhere in the market!
The sector turns over half a trillion dollars each year, but rummaging for riches in this area has never been easy. Notoriously complex and deceptively “samey” companies scare off most stock pickers. However, these winter months along with a few lucky breaks courtesy of Washington may now grant utilities more than just their safe-haven status.
Since all the way back in Q2, 2018, stale and stodgy utilities have outperformed a juiced-up tech sector. Portfolio manager Matt Malek of Miller Tabak said it best. “Utilities going parabolic? Now I’ve seen everything!” But the reasons for the rise aren’t hard to pin down.
As you’d expect, the cost of maintaining or upgrading an energy plant is quite high. The whole industry is funded with debt, so low-interest rates have acted as a key tailwind in reducing the cost of borrowing. That’s a recipe for growth, and the industry’s even managed to convince regulators not to force down energy bills for the average Joe. Therefore, utility giants can hand all their excess alpha onto investors.
And they’ve certainly done that. Our community has poured 100-million-dollars into AES and made gains on 67% of trades. The winning ratio for investors in Kinder Morgan has eclipsed that still, 907 trades open. And 95% positive sentiment in Ameren, a big American natural gas player, speaks of the entire space. In utilities, we trust!
