S&P 500 Utilities Stocks with the Highest Potential Upsides
The utilities sector, one of the most sensitive sectors to interest rate hikes, has been subdued this year. The Utilities Select Sector SPDR ETF (XLU), which tracks the S&P 500 Utilities Index, has fallen more than 4% year-to-date, while the S&P 500 has risen 3%. Strength in Treasury yields and faster-than-expected interest rate hikes have weighed on utilities this year.
In this series, we’ll look at the S&P 500 Utilities stocks that are currently offering attractive upside potentials for the next 12 months.
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The chart above shows utility stocks and their upside potentials considering Wall Street analysts’ mean price targets.
Risk versus reward
Currently, PPL Corporation (PPL) stock offers the highest upside potential of more than 16% among the S&P 500 Utilities. Among the utilities we’re considering here, American Water Works (AWK) offers the lowest estimated upside of 11% for the next year.
Many utilities (IDU) (VPU) posted robust year-over-year earnings growth in the first quarter largely due to favorable weather. Despite their better-than-expected earnings, utility stocks’ trading was muted given the strength in Treasury yields. The ten-year Treasury yield continues to trade close to 3%, its highest level in almost four years. It should be noted that Treasury yields and utility stocks generally trade inversely to each other.
Some of the above stocks have seen huge falls in the last few months, while others have shown striking rallies recently, boasting strong growth prospects for the future. Let’s take a look at PPL in the next article.