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5 Utility Stocks to Beat the September Blues

Zacks Equity Research
Updated

September has historically been the worst month for the stock market. While several theories for this uncanny phenomenon have been doing the rounds, the most common notion is that investors take time off during the summer months, leading to an overall decline in trading volumes.

As it is, the global market is far from being stable at the moment, thanks to possibilities of a rate hike, uncertainties surrounding the Presidential Election in the U.S., the ongoing volatility in oil prices and sluggish growth in China.

Oil price volatility has been hurting oil-based economies and since we presently live in a global village, the drop in growth prospects in some nations affect global growth. Recently, Russia and Saudi Arabia have entered in a pact to control oil prices by adjusting production volumes.

The oil supply glut has also affected big players in the U.S. energy industry. In addition, manufacturers are suffering due to a strong dollar, which is leading to higher product pricing. If the dollar continues its post-Brexit bull run, export prospects of U.S. manufacturers could be significantly hampered. Due to these concerns, the World Bank lowered its 2016 global growth forecast to 2.4% from the January projection of 2.9%.

Utilities Sector Price Index

 

Utilities Sector Price Index

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To counter such volatile conditions, an investor should opt for defensive plays like utilities. The sector is known for its ability to remain mostly steady even amid global turmoil. The year-to-date return from Dow Jones Utility Average (DJU) was 25.1%, compared with the S&P 500’s 11.7%. Here, we have considered five utilities that are likely to generate solid returns.

Picking the Right Utilities

Recognizing a stock with good prospects is no mean feat. But thanks to our new Style Score System, we have been able to identify a few stocks with incredible near-term growth potential.

Our research shows that stocks with a VGM score of ‘A’ or ‘B’, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best investment opportunities for investors.

Spark Energy, Inc. SPKE is an independent retail energy services company. The company is involved in the retail distribution of natural gas and electricity.

This Zacks Rank #1 stock has a VGM Score of ‘A’.

Korea Electric Power Corporation KEP an integrated electric utility company that generates, transmits and distributes electricity in Korea and other countries.

This Zacks Rank #2 stock has a VGM score of ‘A’.

Nippon Telegraph and Telephone Corporation NTT, along with its subsidiaries, provides fixed and mobile voice-related services, IP/packet communications services, and other telecommunications-related services in Japan and other countries.

This Zacks Rank #2 stock has a VGM score of ‘A’.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Companhia Energética de Minas Gerais S.A. CIG, through its subsidiaries, engages in the generation, transmission, distribution and trading of electricity in Brazil.

This Zacks Rank #2 stock has a VGM score of ‘A’.

Telecom Italia S.p.A. TI, along with its subsidiaries, provides fixed and mobile telecommunications services. The company is also engaged in the management and development of a portfolio of regulated and unregulated wholesale services for fixed and mobile telecommunications operators.

This Zacks Rank #2 stock has a VGM score of ‘A’.

Our View

We believe that utilities are the best bet to ride out the choppy market conditions. Their ability to generate stable returns and pay regular dividends make them an ideal choice for a solid portfolio.

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CEMIG SA -ADR (CIG): Free Stock Analysis Report
 
KOREA ELEC PWR (KEP): Free Stock Analysis Report
 
NIPPON TELE-ADR (NTT): Free Stock Analysis Report
 
TELECOM ITA-ADR (TI): Free Stock Analysis Report
 
SPARK ENERGY (SPKE): Free Stock Analysis Report
 
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Zacks Investment Research