Consumer sentiment fell further in May to hit rock bottom as high inflation and geopolitical tensions raised concerns over the economy’s health. Sky-high inflation has almost faded all hopes of an interest rate cut by the Federal Reserve, while a surge in higher energy prices owing to the Iran war has been weighing on the economy.
We, thus, recommend buying four defensive stocks from the utility sectors, namely, Atmos Energy Corporation ATO, CMS Energy Corporation CMS, Consolidated Edison, Inc. ED and American States Water Company AWR.
These stocks have seen positive earnings estimate revisions in the past 60 days, carry a Zacks Rank #2 (Buy), and are set for solid returns. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Consumer Sentiment Hits Rock Bottom
The University of Michigan reported that its Consumer Sentiment Index slid further to come up with a preliminary reading of 48.2 in May, down 3.2% from April’s final reading of 49.8. This was also sharply lower than the consensus estimate of a reading of 49.7. Year over year, consumer sentiment declined 7.7% in May.
Rising inflation remains the primary reason behind the sharp decline in consumer sentiment. Consumer price index (CPI) jumped 0.6% sequentially in April after rising 0.9% in March, the Bureau of Labor Statistics reported last week. Year over year, CPI rose 3.8% in April, the highest since May 2023.
Core CPI, which strips out the volatile food and energy costs, gained 0.4% sequentially in April and 2.8% from the year-ago levels.
The consumer expectations for inflation over the next 12-month period came up with a reading of 48.5 in May, increasing 0.8% sequentially and 1.3% from the year-ago levels. The five-year, or long-term inflation expectations index, fell 0.2% but remained elevated at 3.4%.
Energy costs jumped 3.8% in April. Oil prices have surged nearly 40% since the beginning of the war with Iran.
The Federal Reserve halted interest rate cuts this year but had initially hinted at cuts later this year. However, an unexpected jump in inflation over the past two months has now posed a major challenge for the Federal Reserve in controlling inflation, with hopes of rate cuts anytime soon fading fast.
4 Utility Stocks With Upside
Atmos Energy Corporation
Atmos Energy Corporation, along with its subsidiaries, is engaged in the regulated natural gas distribution and storage business. ATO serves nearly 3.3 million customers in more than 1,400 communities across eight states from the Blue Ridge Mountains in the East to the Rocky Mountains in the West. Atmos Energy operates more than 73,000 miles of transmission and distribution lines as well as 5,700 miles of interstate pipelines.
Atmos Energy has an expected earnings growth rate of 11.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 60 days. Currently, Atmos Energy has a Zacks Rank 2. ATO has a beta of 0.65 and a current dividend yield of 2.27%.
CMS Energy Corporation
CMS Energy Corporation is an energy company. It is the parent holding company of Consumers, an electric and gas utility, and NorthStar Clean Energy, a primarily domestic independent power producer and marketer.
CMS Energy Corporation has an expected earnings growth rate of 7.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days. CMS currently carries a Zacks Rank #2. It has a beta of 0.37 and a current dividend yield of 3.18%.
Consolidated Edison
Consolidated Edison, Inc. is a diversified utility holding company with subsidiaries engaged in both regulated and unregulated businesses. ED’s regulated businesses operate through its subsidiaries — Consolidated Edison Company of New York, Orange and Rockland Utilities, Con Edison Clean Energy Businesses, Inc. and Con Edison Transmission, Inc.
Consolidated Edison has an expected earnings growth rate of 6.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days. ED has a Zacks Rank #2 at present. Consolidated Edison has a beta of 0.29 and a current dividend yield of 3.37%.
American States Water Company
American States Water Company, along with its subsidiaries, provides fresh water, wastewater services and electricity to its customers in the United States. AWR principally works through its two major subsidiaries — Golden State Water Company and American States Utility Services.
American States Water Company has an expected earnings growth rate of 10.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.3% over the last 60 days. Currently, AWR has a Zacks Rank #2. American States Water Company has a beta of 0.60 and a current dividend yield of 2.66%.
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Consolidated Edison Inc (ED): Free Stock Analysis Report
CMS Energy Corporation (CMS): Free Stock Analysis Report
Atmos Energy Corporation (ATO): Free Stock Analysis Report
American States Water Company (AWR): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).