5 Best Utility Stocks to Buy in October 2021

Utility stocks are a defensive bet given their predictable and mostly stable earnings. What’re the five best utility stocks that you can buy in October 2021?

With the U.S. Federal Reserve looking set to begin tapering this year, many would find defensive stocks an attractive bet as compared to growth names. The economic environment has also been uncertain amid stagflation and hyperinflation fears. Utility stocks can help hedge the portfolio in such scenarios.

1. Evergy (NYSE: EVRG)

Evergy serves 1.6 million customers in Kansas and Missouri through its operating subsidiaries, KCP&L and Westar. The company generates energy through a mix of renewable and non-renewable energy. The company generates half of its electricity through emission-free sources.

Like many other utility companies, Evergy is also pivoting towards renewable energy. It has been working towards retiring the fossil fuel power generation capacity and intends to achieve net-zero carbon emissions by 2045.

Evergy is a good utility stock to play the renewable transition

Evergy stock is up almost 19% for the year and at current prices, the dividend yield is 3.4%, which is over twice the S&P 500’s dividend yield. Wall Street analysts have a consensus buy rating on the utility stock and it has six buys, three holds, and one sell rating. The stock’s median target price of $69 implies an 8.2% upside over current prices.

Evergy stock trades at an NTM (next-12 months) PE multiple of 19.1x which is largely in line with its long-term multiples. It looks among the best utility stocks that you can buy in October.

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2. PG&E Corporation (NYSE: PCG)

PG&E Corporation stock is down over 4% in the year and is underperforming the markets as well as other utility stocks. While utility companies are known to pay hefty dividends, PCG had to suspend its dividend after the unfortunate fire incident in Camp Fire. It was the deadliest such event in California and PG&E stock hasn’t been able to fully recover from the blow.

Wall Street finds PCG a utility stock worth betting on

Meanwhile, Wall Street analysts find PG&E as a utility stock worth betting on. It has received a buy rating from 11 out of the 16 analysts polled by CNN Business. The remaining five analysts rate it as a hold. The stock’s median target of $14 is a 20.8% upside over current prices.

PCG stock trades at an NTM PE of 10.6x which looks reasonable considering the risk-return payoffs. The stock is looking bullish on the charts also and has crossed above both the 50-day and 200-day SMA.

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3. NextEra Energy (NYSE: NEE)

NextEra Energy stock has recovered from its 2021 lows and is now up almost 15% for the year and trades near its 52-week highs. The stock is looking bullish on the charts now. It found strong support at the 200-day SMA and has now crossed above the 50-day SMA also. In August, there was a golden cross formation in the stock after the 50-day SMA crossed above the 200-day SMA.

NEE is the largest utility stock

NextEra Energy is the world’s largest utility company and has 45,500 megawatts of net generating capacity. The company is also a play on renewable energy and is the largest wind and solar energy producer globally.

Wall Street analysts have a consensus buy rating on the stock and the median target price of $89.50 is a premium of 5.3% over current prices. NEE trades at an NTM PE of 32.2x which is higher than the historical average. At current prices, the dividend yield is around 1.8%.

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4. AES (NYSE: AES)

Founded in 1981, AES is among the leading power companies globally. The company has a diversified portfolio of power generation spread across both renewable and non-renewable energy. It also backed Fluence Energy, a clean energy company, which is now going public. AES stock is up 10% for the year and the current dividend yield is 2.4%.

All four analysts polled by TipRanks rate AES stock as a buy and its median target price of $30 is a premium of 17% over current prices. AES stock has crossed above the 200-day SMA which is a bullish technical indicator. It also trades above other key moving averages. The 12,26 MACD (moving average convergence divergence) also gives a buy signal for the stock. However, with a 14-day RSI of 69.7, it is now approaching the overbought zone.

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5. Entergy Corporation (NYSE: ETR)

Entergy is an integrated energy company and produces as well as distributes energy to 2.9 million customers across Arkansas, Louisiana, Mississippi, and Texas.

The company has 30,000 megawatts electricity generation capacity which includes 7,000 megawatts of nuclear capacity and 2,700 megawatts of renewable energy capacity. However, the bulk of the company’s electricity generation is tilted towards fossil fuels and it has 28 power plants producing electricity through fossil fuels.

ETR stock is up about 5% in the year and has a dividend yield of 3.7%. This month, Mizuho maintained its buy rating on this utility stock while raising the target price from $114 to $117. However, Morgan Stanley lowered its target price from $122 to $100.

ETR is a stable utility stock

ETR stock currently trades at an NTM PE multiple of 16.9x. The multiples are in line with what it has traded over the last five years. The company does not offer much growth and its revenues have fallen in four out of the last five years. However, barring 2018, the company has managed to increase its EBITDA in all these years. Analysts expect the company’s revenues to rise 6.7% in 2021 after a fall of 7% in 2020.

That said, despite the expected rise, the company’s revenues in 2021 are expected to be only marginally higher than what it posted in 2016.  However, if you are looking at a stable utility stock with a good dividend yield, ETR would fit the bill.

Wall Street analysts are also bullish on this utility stock and it has 15 buys, four hold, and one sell rating. Its median target price of $117 is a premium of 13.5% over current prices.

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