The best-performing stocks in the market are usually the highest-growth stocks or those with the highest expected growth rates. This doesn’t mean that one should be invested in growth stocks and stay away from the value stocks at all times. Historically, value stocks managed to beat the growth stocks hand over fist. The reason is simple. Value stocks are beaten-down stocks with very low or negative growth expectations. Not surprisingly, it is easier for these stocks to beat expectations, on average. On the other hand, everybody is extremely bullish about growth stocks and expects them to have higher growth rates in the future. Their stock prices also reflect this fact. So it is more difficult for these stocks to beat these challenging expectations.
We ranked utility companies based on their expected five-year growth rates. These stocks have at least $10 billion in market cap. Contrarian investors should look into the stocks at the top of the table.
Data source: Yahoo Finance.
Company name | Symbol | Market Cap | Forward P/E | Expected 5-Year Growth Rate |
Entergy Corporation | (ETR) | 11.67B | 10.91 | -1.23 |
Exelon Corporation | (EXC) | 28.34B | 14.45 | -0.91 |
FirstEnergy Corp. | (FE) | 18.74B | 13.41 | -0.38 |
Public Service Enterprise Group | (PEG) | 16.96B | 13.31 | 0.15 |
PPL Corporation | (PPL) | 16.58B | 11.62 | 0.98 |
Edison International | (EIX) | 12.18B | 14.05 | 3.12 |
Dominion Resources | (D) | 28.70B | 15.47 | 3.30 |
Duke Energy | (DUK) | 26.22B | 14.1 | 3.37 |
Consolidated Edison | (ED) | 16.43B | 15.21 | 3.38 |
PG&E Corporation | (PCG) | 17.08B | 11.57 | 3.65 |
Progress Energy, Inc. | (PGN) | 15.18B | 16.1 | 3.84 |
American Electric Power | (AEP) | 18.18B | 11.71 | 3.92 |
Xcel Energy Inc. | (XEL) | 11.92B | 13.52 | 4.73 |
El Paso Corporation | (EP) | 13.63B | 13.94 | 4.86 |
NextEra Energy, Inc. | (NEE) | 22.74B | 11.41 | 5.54 |
The Southern Company | (SO) | 36.25B | 15.66 | 5.57 |
Williams Partners L.P. | (WPZ) | 15.30B | 14.71 | 5.79 |
Spectra Energy Corp. | (SE) | 16.00B | 13.3 | 5.99 |
Sempra Energy | (SRE) | 12.11B | 11.31 | 6.35 |
TransCanada Corp | (TRP) | 29.02B | 16.71 | 6.58 |
Enbridge Inc. | (ENB) | 24.69B | 20.25 | 7.34 |
Enterprise Products Partners L.P. | (EPD) | 34.60B | 18.93 | 8.38 |
Kinder Morgan Energy Partners LP | (KMP) | 22.74B | 28.86 | 8.80 |
ETR and FE are expected to shrink over the next five years. As a result, their PE ratios are low. Israel Englander and Ken Griffin increased their positions in ETR during the second quarter and held about $8 million and $6 million, respectively, in ETR. Israel Englander also increased his position in FE and held nearly $40 million in FE. Jim Simons initiated a brand new $28 million FE position during the second quarter.
There are other utility companies trading at lower prices because of low expected growth rates: PEG and PPL. One of the stocks hedge funds are extremely bullish about is PEG. Jim Simons initiated a brand new $27 million PEG position during the second quarter. D.E Shaw and Steven Cohen increased their holdings in PEG shares during the second quarter. Israel Englander and Ken Griffin also have PEG in their portfolios.
Another stock that hedge funds heavily invested during the past few months is PPL. Steven Cohen increased his position in PEF by 1fold and held more than $66 million in PPL shares by the end of second quarter. Charles Clough increased his position in PPL by nearly 20-fold. Jim Simons initiated a brand new $1.2 million PPL position during the second quarter.
EIX and DUK are also promising stocks. Steven Cohen and Jim Simons increased their positions in EIX during the second quarter. D.E Shaw, Ken Fisher and Israel Englander also hold shares in EIX. Israel Englander and Ken Griffin increased their holdings in DUK. George Soros also initiated a $0.7 million DUK position.
Usually stocks with higher expected growth rates trade at much higher multiples. Some of the stocks with higher expected growth rates in our list have very attractive multiples. SRE, SE, NEE and TRP deserve a closer look. Insiders are getting bullish about some of these stocks as well. D, ED, PEG, PCG, AEP, and EPD saw insider purchases during the past three months.
Disclosure: I am long FE, PEG.
