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3 Things for U.S. Utilities Investors to Watch

Valuation, growth capital expenditure, and renewable energy are top of mind.

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Utilities have faced atypical volatility during the past three months. Shelter-in-place orders have driven commercial and industrial energy demand down at a stunning pace while once-stagnant residential demand has jumped. Utilities stocks have bounced like racquetballs. What will the post-pandemic world look like for utilities? We think there are three critical investment themes.

Valuation matters. The past three months prove investors should heed valuation signals, even for utilities. Since we warned of record-high utilities valuations in late February, the Morningstar U.S. Utilities Index is down 15%, trailing the S&P 500 (down 8%). U.S. utilities are now in line with our fair value estimates. With interest rates still low, investors might find dividend yields attractive.

Andrew Bischof does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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