There are just three weeks left until New Year’s Eve. And the Dow Jones Utility Average is still down around 6 percent in 2023. That leaves the sector on track for its worst performance since 2008, barring a powerful end-year rally, though that year’s 27.8 percent demolishing is in a whole different league. Conservative investors should take advantage of the decline to add long-time holding WEC Energy Group (WEC), advises Roger Conrad, editor of Conrad’s Utility Investor.
One reason: Since early October, the DJUA is up 11.5 percent. That tops even the robust returns from the S&P 500 and the big-technology-stock-filled Nasdaq 100. And the biggest winners the past two months have been the stocks that were beaten up the most through September. One example is AES Corp (AES), with a 60 percent-plus return.
My view: We’re in the early stages of a utility sector re-rating and stock price recovery. At the core of the comeback is the resilience of companies’ earnings and CAPEX-led growth plans.
WEC Energy Group (WEC)
The Q3 results and guidance updates I highlighted last month and in the current Utility Report Card clearly show companies are finding ways to stay on track, despite the headwinds of higher interest rates and affordability concerns. That underlying strength was further on display in presentations delivered by company managements at the annual Edison Electric Institute Financial Conference in mid-November.
Until there’s real conviction the Federal Reserve is finished raising interest rates this cycle, I suspect we won’t see anything too explosive on the upside for utility stocks. And that could be well into 2024. But despite the recent rally, even the best in class names are selling at multiples to earnings typical of previous bear market bottoms.
That limits downside if we do see a recession and augurs big gains if we don’t. As a result, this is an exceptional time for investors to capture high yields in our essential services coverage universe, both with equity investments and fixed income.
Recommended Action: Buy WEC