Utilities are having a renaissance moment
Microsoft, Amazon and Google are betting big on utilities
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Ho-Hum utility stocks have been anything but in the past few months and are enjoying one of the best years in recent memory with gains over 29% outpacing the S&P 500’s 23% rise.
Kevin Mahn, president and chief investment officer of Hennion & Walsh Asset Management told FOX Business he sees more tailwinds for utilities, even with the advance.
"They generally tend to provide high level of current income potential through dividends. And now that we're heading into a declining interest rate environment, the dividends that they pay will become more and more attractive to investors." Additionally, Mahn noted the group’s role in artificial intelligence. "They are a back door play into the AI revolution" he said.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| XLU | UTILITIES SELECT SECTOR SPDR ETF | 81.15 | -1.78 | -2.15% |
The Utilities Select Sector SPDR Fund or XLU is a broad-based exchange-traded fund that captures a wide swath of the sector, according to Mahn, who is also recommending individual names, some of which are in this ETF.
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Utilities Select Sector SPDR Fund
Constellation Energy, one of Mahn’s top picks, just inked a 20-year power deal with Microsoft which will restart Pennsylvania’s Three Mile Island following its 1979 partial shutdown which forced mass evacuation.
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| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| MSFT | MICROSOFT CORP. | 430.98 | +7.52 | +1.78% |
| CEG | CONSTELLATION ENERGY CORP. | 249.58 | -6.98 | -2.72% |
| DUK | DUKE ENERGY CORP. | 115.18 | -1.87 | -1.60% |
| SO | THE SOUTHERN CO. | 87.77 | -1.36 | -1.53% |
"That is more often going to be the path forward, as there are other utilities such as the Southern Company and Duke Energy that also own nuclear power plants. So, I really think utilities are becoming a very intriguing area of the market right now", Mahn added.
Other large utility ETFs include Global X US Infrastructure Development ETF, Vanguard Utilities ETF and iShares Global Infrastructure ETF, as tracked by VettaFi.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| PAVE | GLOBAL X U.S. INFRASTRUCTURE DEVELOPMENT ETF - USD DIS | 45.57 | -0.18 | -0.39% |
| VPU | VANGUARD WORLD FUND VANGUARD UTILITIES ETF | 175.53 | -3.58 | -2.00% |
| IGF | ISHARES S&P GLOBAL INFRASTRUCTURE INDEX FUND | 54.88 | -0.82 | -1.47% |
Three Mile Island in March 1999. The damaged Unit 2 reactor is seen in the foreground. (John S. Zeedick/Getty Images / Getty Images)
UBS Global Wealth Management Head of U.S. equities David Lefkowitz, who counts utilities as a top sector, is also betting on future demand.
"I think there is something changing with utilities… We are actually looking at a situation where we are going to have pretty aggressive power demand for the first time in decades" he said during an appearance on "Making Money with Charles Payne."
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| AMZN | AMAZON.COM INC. | 210.71 | +2.82 | +1.36% |
| NWE | NORTHWESTERN ENERGY GROUP INC. | 54.45 | -0.79 | -1.43% |
| D | DOMINION ENERGY INC. | 57.34 | -1.41 | -2.40% |
Last week, Amazon took Microsoft’s lead, signing three agreements to develop nuclear power projects.
The company inked deals with public utility conglomerate Energy Northwest and developer X-Energy to build several small modular reactors (SMRs) in the region, and made an agreement with Dominion Energy in Virginia to explore the development of another SMR to boost power in that area.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| GOOGL | ALPHABET INC. | 171.49 | +2.54 | +1.50% |
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As did Google, signing a deal with Kairos Power to bring Kairos' first SMR online by 2030, followed by additional deployments through 2035.