A high-growth portfolio is going to be built around companies that have the potential for explosive growth. However, these companies can also be risky investments. To add some balance and protection from losses should a shooting star flame out, your portfolio should include downside protection. Utility stocks are ideal for this role.
Utility stocks may not be known for huge gains, but they seldom see big losses. They lack the volatility of other stocks. Even in a bad economy, people still need utilities; unlike companies that depend on discretionary consumer spending, which may see their revenue plummet. Utilities are also relatively safe from competition. With the large infrastructure investment required, the cost of entry for newcomers is prohibitively high. Utilities may also be protected from competitors by government regulations.
They may be a little boring, but these eight utility stocks are great picks for adding downside protection to your portfolio.
- AES Corp (AES)
- Clean Energy Fuels Corp. (CLNE)
- Chesapeake Utilities Corporation (CPK)
- Companhia Energetica Minas Gerais ADR (CIG)
- DTE Energy Co. (DTE)
- Duke Energy Corp. (DUK)
- Kenon Holdings Ltd. (KEN)
- Mdu Resources Group Inc. (MDU)
While no one buys utility stocks expecting to see strong long-term growth, stranger things have happened. As we enter into a new era of electric vehicles, the demand on power grids is going to ramp up. That could well mean more upside than usual for some of these companies.
Virginia-based AES (AES) is a power generation company that operates in the U.S. and 15 other countries. AES has a long history of firsts. This includes being the first Independent Power Producer in the U.S. (1988), creating the first documented carbon offset program in the U.S. (1989) and in 2021, the AES Alamitos Battery Energy Storage System became the world’s first standalone energy storage project for local capacity.
The company has been increasingly investing in solar and wind power generation and by 2020 had reduced its dependence on coal to under 30%. In addition, its Fluence joint venture is pushing the envelope on clean power generation solutions that stabilize the grid by storing electricity in batteries. AES stock had been holding steady for most of the past decade, but kicked into growth mode in 2018 and again in 2020. As a result, shares have gained 98% over the past 12 months.
Clean Energy Fuels
Clean Energy Fuels’ (CLNE) focus is on renewable natural gas (RNG) used in the transportation sector. RNG is produced by capturing the methane created when biomaterials break down. Electrification isn’t coming to big rigs any time soon, and that’s a problem with the push toward zero emissions. In terms of hydrocarbon emissions, RNG is 125% cleaner than the most efficient clean diesel technology. It’s an immediate solution for transport trucks, buses and other large vehicles until batteries are viable.
Clean Energy Fuels doesn’t just produce RNG, the company distributes it — in liquid and compressed natural gas form — to a network of 565 fueling stations across the U.S. and Canada. Clean Energy Fuels has been busy signing agreements with companies and cities looking to reduce the carbon impact of their fleets.
For the past five years, CLNE stock has been stable. However, it has spiked multiple times since last November in response to a series of high profile RNG supply deals.
Chesapeake Utilities (CPK) describes itself as a “diversified energy company” with a history dating back to 1859. Its portfolio of operations includes government-regulated natural gas distribution in Delaware and Florida, and electrical distribution in Florida. Remember what I said about government regulations helping to protect utility stocks from competition?
Chesapeake also operates propane distribution services, mobile gas transport services and the company also runs a combined heat and power plant in Florida. While I did say that utility stocks aren’t typically long-term growth performers, CPK stock is not typical. Over the past decade, it has been on a solid upward trajectory. Over the past five years, that has translated to a gain of just over 100% for shareholders.
Brazil’s Companhia Energetica Minas Gerais (CIG) — let’s just stick with CEMIG instead — is one of that country’s biggest power generators and distributors.
With 50 power plants supplying approximately 12% of Brazil’s power, CEMIG is the fourth-largest electricity company in that country, by revenue. This deep entrenchment gives CIG stock the advantages of other utility stocks, namely consistent demand and low risk of competition. However, CEMIG is different from pure-play utilities. It has diverse holdings in other lines of business including gas transportation and telecommunications.
How has CIG stock performed over the past five years? Well, it has been more volatile than many utility stocks. Despite the ups and downs, the overall trend has been positive, with 94% growth during that time.
Detroit’s DTE Energy (DTE) is a diversified energy company. The company operates an electric utility with 2.2 million customers and a natural gas utility with 1.3 million customers. Most of these customers are in Michigan. DTE is working toward support of net zero emissions, including the development of three new wind generation farms with a total of 455 MW of generation capacity. It has also launched the second phase of a project to strengthen Michigan’s EV charging infrastructure. In addition, DTE’s CleanVision Natural Gas Balance is a program that includes both carbon offsets and renewable natural gas.
In a recent business update, DTE announced its ongoing move toward becoming a pure-play utility company. It has a goal of generating 90% of future earnings from regulated utilities. DTE is also projecting 5% to 7% CAGR operating earnings per share growth through 2025.
Over the past five years, DTE stock has offered a 56% return for investors.
Duke Energy (DUK) is one of the largest electrical power holding companies in the U.S., as well as a top U.S. renewable energy provider. Operating in six states, including Florida and the Carolinas, Duke Energy has a total of 6.8 million retail electric customers. In addition, the company also counts 1.6 million customers for its natural gas operations.
Duke Energy has been investing for a net zero emission future with a wider footprint, across 15 states. Its portfolio of renewable energy projects (through its subsidiary Duke Energy Renewables) includes 126 solar energy facilities, 22 wind farms, 11 fuel cell locations and one battery storage project. Combined, these projects have an output of over 8,000 MW.
Duke Energy currently has a market capitalization of over $79 billion. Over the past five years DUK stock has delivered growth of 30%.
Kenon Holdings (KEN) is an interesting option. The holding company says its focus is “dynamic, primarily growth-oriented, businesses.” That doesn’t sound much like these other utility stocks. However, one of the company’s primary businesses is a 58% stake in OPC Energy, Israel’s first private power generation operator.
By adding KEN stock to your portfolio, you benefit from the downside protection of a utility. But you also have the benefit of growth potential from other areas like Kenon Holding’s stake in Chinese auto maker Qoros. That combination is evident in the returns for KEN stock. At 292% over the past five years, this is much more aggressive growth than you would expect to see in utility stocks.
Mdu Resources Group
The final entry on this list of downside-protecting utility stocks is Mdu Resources Group (MDU). This “diversified natural resources” company operates in 48 states. The company got its start in 1924 as the Minnesota Northern Power Company and it retains that interest in being a utility. At this point. Mdu’s electric and gas utilities serve 1.1 customers across eight states in the northwest and northern Great Plains.
MDU stock has been on a modest growth trajectory over the past five years. After plummeting during the stock market meltdown last March, MDU shares rallied, recovered, then kicked back into growth mode. So far in 2021, MDU stock is up 31%. It’s nice to have an investment option that offers the downside protection of utility stocks, while also offering decent long-term growth potential.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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