Although circumstances earlier in the week beginning Dec. 11 implied a brighter-than-expected future for the economy, a harsh reality check now amplifies the narrative for the top utility stock picks for 2023. At first, an inflation print, which came in below the consensus forecast emboldened the market. However, with the Federal Reserve again raising rates, the specter of a recession rings loudly.
Fundamentally, while price spikes may have cooled in intensity, inflation still took its toll on consumers. Evidence came in the form of a disappointing sales report. Therefore, consumers appear intent on battening down the hatches. So, how does this affect the top utility stock picks for 2023? Simply, utilities represent must-have expenditures.
Start cutting into critical services such as electrical power and it’s practically game over. Therefore, households will sacrifice just about every item on the budget before thinking about necessary services. While cynical, it’s the overriding reality that may boost the top utility stock picks for 2023.
Suburban Propane Partners
Duke Energy (DUK)
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Based in Charlotte, North Carolina, Duke Energy (NYSE:DUK) offers one of the most compelling arguments for the top utility stock picks for 2023: geographic advantages. Per its website, Duke provides energy services to approximately 7.4 million customers in the Carolinas, Florida, Ohio, Kentucky and Indiana and retail natural gas services to more than 1.5 million customers in the Carolinas, Ohio, Kentucky and Tennessee.
As macroeconomic conditions worsen, people (particularly younger folks) find living in overhyped metropolitan areas not worth the price. Instead, several states – particularly in the Midwest and along the southeastern coastline – offer attractive alternatives. For instance, the Carolinas consistently attract millennials. Since this is now the power-spending demographic, Duke is positioned where the money will be, not where it was.
On a year-to-date basis, DUK finds itself down about 1%. However, near-term momentum has been fairly strong. In the trailing month, shares gained nearly 5%. Given longer-term trends, if you’re patient, DUK ranks among the top utility stock picks for 2023.
Sempra Energy (SRE)
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Speaking from both personal observation and from reading various news reports, Sempra Energy (NYSE:SRE) has a checkered past regarding the Southern Californian regions it serves. Headquartered in San Diego, America’s Finest City may not have America’s finest utility company. This year, protestors called out Sempra for environmental degradation. Despite the weather cooling in recent months, protestors remain fired up.
Now, I’m mentioning this not to pour salt on Sempra’s wounds but rather to demonstrate its cynical resilience. No matter how much outrage targets Sempra, SRE stock still chugs along. Since the start of the year, shares gained nearly 23% of equity value. Further, in the market fallout of Dec. 15, SRE only lost a little more than 1%. In contrast, the benchmark equities index slipped 2.5%.
Love it or hate it, California represents the economic engine of this country. Further, the latest data suggests that the Golden State alone stands poised to become the fourth-largest economy, surpassing Germany. Sempra isn’t going anywhere. This makes it one of the top utility stock picks for 2023.
National Grid (NGG)
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When it comes to deciphering the top utility stock picks for 2023, it’s probably best for investors to bulk up on domestic players. To paraphrase the legendary Warren Buffett, invest in what you know. Nevertheless, if you want to get a bit adventurous in this otherwise boring sector, you may consider National Grid (NYSE:NGG).
Based in the U.K., National Grid owns and operates electricity and natural gas transmission networks. However, it also operates transmission networks in the northwestern region of the U.S. Since the beginning of this year, NGG slipped 14%. However, in the trailing month, shares gained nearly 4%, possibly reflecting a recovery initiative.
Better yet, for those seeking discounts in their top utility stock picks for 2023, National Grid rates as undervalued. Currently, the market prices NGG at 13.85 times forward earnings. In contrast, the sector median value is 16.5 times.
OGE Energy (OGE)
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Headquartered in Oklahoma City, Oklahoma, OGE Energy (NYSE:OGE) is a holding company that investments in energy and energy services providers. Per its website, OGE offers physical delivery and related services for electricity in its home state and western Arkansas. At time of writing, the company commands a market capitalization of just under $8 billion.
On a technical level, OGE ranks among the top utility stock picks for 2023 due to its underlying stability. Since its Jan. opener, OGE gained over 5% of equity value. Further, momentum has been strong in the back half of the year. In the trailing six-month period, OGE returned shareholders almost 14%. As well, it’s worth noting that the company carries a forward yield of 4.13%.
On a fundamental level, OGE is undervalued. Presently, the market prices shares at 8.7 times trailing-12-month earnings. In contrast, the sector median value is 16.5 times. Also, OGE’s return on equity pings at 22.4%, reflecting superior capacity in converting equity financing into profits.
UGI Corp (UGI)
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Operating out of King of Prussia, Pennsylvania, UGI Corp (NYSE:UGI) is a natural gas and electric power distribution company. Per its website, UGI owns AmeriGas, the largest propane marketer in the United States. UGI also owns AvantiGas, Antargaz and Flaga in Europe. Currently, the company carries a market cap of nearly $8 billion.
On paper, UGI may represent one of the top utility stock picks for 2023 but for contrarians. Since the start of this year, shares gave up nearly 17% of market value. To be sure, the second half has been more auspicious for UGI, losing only half a percent. Also, in the trailing month, UGI actually gained a hair over 3%.
It’s the fundamentals, though, that should attract the most attention. At the moment, the market prices UGI at 12-times forward earnings. This compares favorably to the industry median of 16.5 times. In addition, UGI’s Shiller price-earnings ratio is only 11 times, ranking favorably below nearly 68% of the competition.
Otter Tail (OTTR)
Headquartered in Fergus Falls, Minnesota, Otter Tail (NASDAQ:OTTR) is an energy firm whose main subsidiary is the Otter Tail Power Company. Per its public profile, this subsidiary serves at least 423 towns at retail and delivers power to about 14 municipal utilities.
Fundamentally, as a small regional player, Otter Tail carries a high-risk, high-reward profile. For example, OTTR shares slipped nearly 18% of equity value since the start of the year. Also, it’s been a volatile ride in the back half of 2022 when other top utility stock picks for 2023 performed much better. Still, it started to show some signs of life recently. In the trailing month, OTTR gained nearly 4%.
While some might overlook Otter Tail, it would be a mistake. For one thing, the market prices OTTR at only 8.2-times trailing earnings, below 78% of the competition. Second, the company features solid revenue growth in the past three years at 7.6% (relative to the industry). Finally, its ROE of nearly 28% reflects a very high-quality business.
Suburban Propane Partners (SPH)
Headquartered in Whippany, New Jersey, Suburban Propane Partners (NYSE:SPH) is a nationwide marketer and distributor of a diverse array of products to meet the energy needs of its customers. Specifically, Suburban Propane specializes in heating oil, refined fuels and of course its namesake energy commodity. In addition, the company markets natural gas and electricity in deregulated markets.
At the moment, SPH features a market cap of just over $1 billion, making it one of the small-cap players among the top utility stock picks for 2023. Since the January opener, shares gained 5%, a very respectable figure given the circumstances. Over the trailing year, SPH returned 12% of equity value for shareholders, suggesting a steadily brewing bullish narrative.
As with many of the other names on this list of top utility stock picks for 2023, SPH rates as undervalued. In particular, the market prices SPH at 7.3-times trailing earnings. In contrast, the sector median value is 16.5 times or below roughly 84% of the competition.
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 InvestorPlace.com 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.