The case for utilities stocks

Utilities could offer value, stable earnings, and more.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Print

Despite a worsening pandemic that could challenge a full economic recovery, utilities stocks are doing more than just keeping the lights on. Douglas Simmons, portfolio manager of Fidelity® Select Utilities Portfolio (FSUTX), says power companies remain attractive based on valuations, long-term secular trends, and their defensive characteristics.

“This is a sector that’s lost little to no economic or business value because of the coronavirus pandemic,” he says.

Recession-related weakness among commercial and industrial customers of utility providers largely has been offset by higher-margin residential usage, he adds. Moreover, most utilities have affirmed their 2020 earnings guidance and nearly all affirmed their long-term growth rates, according to Simmons.

Simmons says the sector seems to be forgotten amid fervor for momentum stocks, tech shares, and specific economic recovery plays.

It’s not clear how many of the current winners would fare if corporate taxes increased.

Utilities could gain if taxes go up because this would be cash-flow accretive for the sector as a whole, and more supportive of renewable energy policy—the latter of which could result in faster earnings growth.

As of the end of the third quarter, Simmons says he’s constructive on utilities because they’ve been generating a double-digit total return, but with low valuations and amid an environment of low interest rates. He also sees the sector potentially benefitting long-term from a transition to renewable energy sources and away from coal and oil.

As of September 30, the fund held large stakes in regulated, more defensive electric utilities, including NextEra Energy (NEE).

In addition, Simmons has added to several stocks in recent months, including multi-utility CenterPoint Energy (CNP), which he considered a compelling value with an activist shareholder pushing for changes that could benefit the company.

Next steps to consider



Find stocks


Match ideas with potential investments using our Stock Screener.



5-step guide to trading


Learn what you need to know before trading the market.

A collection of current insights from our portfolio managers.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Print
Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

As with all your investments through Fidelity, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, financial situation, and evaluation of the security. Fidelity is not recommending or endorsing this investment by making it available to its customers.

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

857246.133.0
close
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
close

Your e-mail has been sent.