Saturday, December 2, 2023
Stocks To Buy

The 3 Most Undervalued Utilities Stocks to Buy in September 2023

While utilities stocks might not be the most exciting investment category, they do offer one cynical benefit. When people flip the switch, they expect the lights to turn on. Indeed, history shows that bad things can happen if nothing happens following the aforementioned process.

Another factor that may lift utilities stocks over other asset classes over the long run is the underlying natural monopoly. Legally, nothing really prevents a newcomer from competing against an established utility service. However, due to the myriad regulations along with the steep barriers to entry, would-be rivals don’t even bother.

And therefore, this industry also benefits from a captive audience. No matter what happens in the economy, you’ve got to pay your bills. With that, below are undervalued utilities stocks to buy this month.

FirstEnergy (FE)

Based in Akron, Ohio, FirstEnergy (NYSE:FE) is an electric utility. Per its public profile, FirstEnergy’s subsidiaries and affiliates are involved in the distribution, transmission, and generation of electricity, as well as energy management and other energy-related services. Moreover, the corporate umbrella represents one of the largest investor-owned utilities stocks in the U.S., serving six million customers.

However, despite its pertinence to communities and their local economies, FE hasn’t had a great performance in the charts. Since the January opener, shares stumbled just under 14%. Nevertheless, this red ink could make FE one of the undervalued utilities stocks to speculate on. For example, FE trades at a forward earnings multiple of 13.47X, below the sector median of 13.9x.

As for passive income, First Energy offers a forward yield of 4.31%. Enticingly, this rate is above the average yield for utilities stocks at 3.75%. In closing, analysts peg FE as a moderate buy with a $40.43 average price target, implying nearly 12% upside potential.

Sempra Energy (SRE)

One of my favorite utilities stocks to discuss, Sempra Energy (NYSE:SRE) doesn’t get much love in this neck of the woods. Headquartered in San Diego, California, Sempra seems to always find itself raising the ire of its customers. However, that’s also why it’s a great investment. If you want to live in a desirable region of Southern California, you’re going to have to pay up.

And you know what? People pay. Yes, we’ve all heard about California’s net migration out of the Golden State. While I wouldn’t call it “fake news,” you must consider the context. While lower-income folks are leaving, higher-income workers are replacing them. By deduction, such a pivot toward quality over raw quantity should help lift Sempra.

Trading at only 0.91x tangible book value, SRE happens to be one of the undervalued utilities stocks to buy. Along with that discount, you get a 3.31% forward yield and 19 years of consecutive dividend increases. Finally, SRE is a moderate buy with an $81.95 price target, translating to 14% upside potential.

Entergy (ETR)

An integrated energy company, Entergy (NYSE:ETR) primarily engages in electric power production and retail distribution operations in the Deep South of the U.S. Per its corporate profile, the company generates and distributes electric power to three million customers in Arkansas, Louisiana, Mississippi, and Texas. As with many other utilities stocks, though, ETR has struggled this year, losing about 11% since the January opener.

In the trailing 365 days, ETR slipped more than 18%. However, for contrarians, Entergy could make an enticing case for undervalued utilities stocks. For instance, ETR trades at a forward earnings multiple of 13.52x. However, the sector median value comes in at 13.9X. Also, the company runs at 5.65x operating cash flow, favorably below 67.43% of its peers.

For passive income, Entergy commands a forward yield of 4.41%. Along with this generous yield, the payout ratio – while a bit elevated – is quite reasonable at 59.56%. Lastly, analysts peg ETR as a moderate buy with an average price target of $110.86, implying over 14% upside potential.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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