Volatility Returns Amid Ongoing Geopolitical Tension: 3 Utility Picks
Inflation eased over the past two months, but fears of a surge have been gripping markets. Geopolitical tensions have escalated lately, with the United States and Iran no closer to an immediate peace deal. Oil prices have been surging once again, and investors are yet to get a clear picture of the Federal Reserve’s future monetary policy.
Given this scenario, we recommend buying four defensive stocks from the utilities sector, namely, Ameren Corporation AEE, Atmos Energy Corporation ATO and Exelon Corporation EXC.
These stocks are also from the low-beta category (beta greater than 0 but less than 1). Hence, the recommended approach is to invest in low-beta stocks with a high dividend yield and a favorable Zacks Rank.
Geopolitical Tensions Grip Markets
Oil prices rose on Monday, with the U.S. West Texas Intermediate futures ending 2.6% higher, to settle at $84.50 a barrel, while international benchmark Brent crude futures rose 2.7%, settling at $90.87 per barrel.
The jump came as the ceasefire between the United States and Iran came to an end on Monday, with no progress in negotiations between the two countries. Tensions escalated further after President Donald Trump issued fresh threats to bomb Oman if it “gets in the way” over the Iran deal.
Trump also said that he would not extend the ceasefire, while Iran also said that it would not go into any talks to extend the memorandum of understanding.
Oil prices eased in June after a memorandum of understanding was reached between the United States and Iran. This saw inflation ease in the past two months. The consumer price index (CPI) rose 0.1% sequentially in July. Year over year, inflation declined to 3.4% from 3.5% in the prior month.
One of the primary reasons behind the decline was a drop in oil prices. However, oil prices are still sharply higher than levels seen in early February, when the war had not begun. Now, fears have resurfaced that oil prices could surge again, which could see inflation climb.
The Federal Reserve left interest rates unchanged in its last FOMC meeting in July, although markets are pricing a 25-basis point rate hike this year. However, the Fed’s delay in hiking interest rates has left investors unsure about the central bank’s future monetary policy.
3 Utility Stocks With Growth Potential
Ameren Corporation
Ameren Corporation is a utility company that generates and distributes electricity and natural gas to residential, commercial, industrial and wholesale end markets in Missouri and Illinois. AEE serves nearly 2.4 million electric and more than 900,000 natural gas customers.
Ameren Corporation’s expected earnings growth rate for the current year is 7.2%. The Zacks Consensus Estimate for current-year earnings improved 0.6% over the past 60 days. Ameren Corporation has a beta of 0.47 and a current dividend yield of 2.73%. AEE currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Atmos Energy Corporation
Atmos Energy Corporation, along with its subsidiaries, is engaged in the regulated natural gas distribution and storage business. ATO serves nearly 3.3 million customers in more than 1,400 communities across eight states from the Blue Ridge Mountains in the East to the Rocky Mountains in the West. Atmos Energy operates more than 73,000 miles of transmission and distribution lines as well as 5,700 miles of interstate pipelines.
Atmos Energy has an expected earnings growth rate of 13.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the last 60 days. ATO has a beta of 0.60 and a current dividend yield of 2.35%. Atmos Energy has a Zacks Rank #2.
Exelon Corporation
Exelon Corporation is focused solely on transmission and distribution operations. EXC will be serving more than 10 million customers through seven fully regulated transmission and distribution utilities—Atlantic City Electric Company, Baltimore Gas and Electric Company, Commonwealth Edison Company, Pepco Holdings LLC, Delmarva Power & Light Company, PECO Energy Company and Potomac Electric Power Company.
Exelon Corporation has an expected earnings growth rate of 3.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last 60 days. EXC currently carries a Zacks Rank #2. Exelon Corporation has a beta of 0.31 and a current dividend yield of 3.66%.
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This article originally published on Zacks Investment Research (zacks.com).
