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3 Utility Stocks to Add to Your Portfolio as Volatility Grips Markets

Volatility has gripped markets as fears of an imminent recession continue to dent investors’ confidence. Fears escalated further on May 1, following the failure of First Republic Bank last week.

The Fed had to intervene and forcibly auction the bank, with JP Morgan Chase & Co. JPM emerging winner over the weekend auction. Despite the takeover, the collapse of First Republic Bank has ignited fresh fears that the crisis could balloon and spread to other midsized banks.

This comes as the Fed gears up for another round of interest rate hikes this week, with investors reeling under fears of the economy slipping into a recession. The Fed had already indicated that rate hikes would continue for a long period than earlier expected to fight multi-decade high inflation.

It would thus be prudent to invest in defensive stocks like utilities with a favorable Zacks Rank. These are likely to strengthen one’s portfolio.

Markets Volatile on Multiple Fears

Fresh fears over the stability of the U.S. financial sector gripped markets following the collapse of First Republic Bank, the third casualty of the biggest financial crisis since 2008.

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The Fed intervened and all the deposits of the troubled lender and most of its assets were acquired by JP Morgan Chase. Yet, market participants have been reeling under fears that the crisis could spread to other midsized banks.

This sparked fears among depositors who fled regional banks, leading to a selloff in shares of several regional banks. The financial sector weighed on the broader markets, with the Dow, the S&P 500 and the Nasdaq all ending in negative territory.

Investors are already worried that further rate hikes, which are going to make borrowing expensive, could now push the economy into a recession. The Fed is expected to increase interest rates by another 25 basis points on May 3, its tenth straight interest rate hike in just over a year.

Investments in utility stocks would thus be safe in this situation. The utilities sector is fundamentally sound and mature, considering that demand for these services is often resistant to changes in the economic cycle. These companies provide necessary services that are always in demand, such as telecommunications, energy, gas and water.

This means that including companies from the utility basket often increases a portfolio's resilience in a tumultuous market situation. The sector is also known for the stability and transparency of its cash flows and profitability.

Moreover, utilities are mostly low-beta stocks (beta >0 but <1). Given this situation, investing in low-beta stocks with a high dividend yield and a favorable Zacks Rank may be the best option.

Our Picks

We have narrowed our search to four low-beta utility stocks that are regular dividend payers. These stocks have seen positive earnings estimate revisions within the last 60 days. Each of our picks carries a Zacks Rank #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

New Jersey Resources Corporation NJR is an energy services holding company that, through its subsidiaries, provides safe and reliable natural gas and clean energy services, including transportation, distribution, asset management and home services. NJR operates through four segments: Natural Gas Distribution, Clean Energy Ventures, Energy Services, and Storage and Transportation.

New Jersey Resources has an expected earnings growth rate of 5.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.1% over the last 60 days. NJR carries a Zacks Rank #2. New Jersey Resourceshas a beta of 0.65 and a current dividend yield of 3.02%.

NiSource Inc. NI is an energy holding company and, together with its subsidiaries, provides natural gas, electricity and other products and services in the United States. NI’s operating subsidiaries deliver energy to roughly 4 million customers in seven states — Ohio, Pennsylvania, Virginia, Kentucky, Maryland, Indiana and Massachusetts.

NiSource has an expected earnings growth rate of 6.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.3% over the last 60 days. NI carries a Zacks Rank #2. NiSource has a beta of 0.47 and a current dividend yield of 3.51%.

Vistra Corp. VST offers electricity and power generation, distribution and transmission solutions. VST is based in Dallas.

Vistra has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.8% over the last 60 days. VST sports a Zacks Rank #1. Vistrahas a beta of 0.97 and a current dividend yield of 3.31%.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report

NiSource, Inc (NI) : Free Stock Analysis Report

NewJersey Resources Corporation (NJR) : Free Stock Analysis Report

Vistra Corp. (VST) : Free Stock Analysis Report

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