Four utility stocks to defend against yield inversion

The sector remains relatively immune from economic shocks, has recession-resistant products and pays healthy dividends – but the stocks are expensive

Vikram Barhat 21 August, 2019 | 2:30AM

Utilities COmpany - Electricity Pole

The staggering 800 point plunge in the Dow Jones index last Wednesday marked the worst day of 2019. The recent spike in market volatility has been triggered by a bond market phenomenon called yield curve inversion, widely regarded as a precursor to an impending recession. This is yet another sign of the worrisome state of the U.S. economy, which has sparked a widespread sell-off, sending panicked investors running for safe-haven alternatives. 

Now’s the perfect time to look at boring but stable sectors such as the utilities. The sector remains relatively immune from economic shocks, utility companies offer relatively recession-proof products and their stocks pay healthy dividends. The inherently non-cyclical nature of the sector is underpinned by the fact that consumers can’t, or tend not to, cut back on essential products and services no matter the prevailing economic conditions.

Despite their defensive characteristics, though, these stocks can participate in stock market rallies. The sector has clocked more than 16% gains for the year to date, not far behind 18% returns for the S&P 500, as of August 14. As a result, these utility names are trading close to or above their fair value estimates. Investors looking for a defensive play may want to wait for a pullback to create some margin of safety and a better entry point.
 

Duke Energy Corp

 

Ticker

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Duke Energy Corp83.23 USD1.08
NextEra Energy Inc233.85 USD2.16
Sempra Energy123.81 USD2.25
Southern Co54.58 USD1.39

About Author

Vikram Barhat

Vikram Barhat  Vikram Barhat is a Toronto-based financial writer specializing in investing, stock markets, personal finance and other areas of the financial services industry. He also writes for CNBC, BBC, The Globe and Mail, and Toronto Star.