Utilities Outperform in 2024: 3 Stocks to Keep on Your Radar

In a surprising turn of events, the utilities sector has emerged as one of the best-performing sectors of 2024. Year-to-date (YTD), the Utilities Select Sector SPDR ETF (NYSE: XLU) is up nearly 30%, outpacing the QQQ ETF and the S&P 500 ETF (NYSE: SPY), both of which have gained closer to 20%. This rally has defied expectations, driven by an interest rate cut, renewed nuclear energy initiatives, and even the rise of artificial intelligence (AI). For investors seeking growth beyond traditional tech and healthcare sectors, opportunities in the utilities space are beginning to shine as some stocks continue to hit new highs.

What’s Driving the Surge in Utilities?

It’s not often we highlight utilities as a high-growth play, but this year is an exception. A combination of tailwinds has fueled stellar performance in 2024. Key catalysts include:

Increased Power Demands from AI: The growing power needs of AI-driven data centers present long-term growth opportunities for utility providers.
Interest Rate Cuts: Lower interest rates typically favor utility stocks, attracting more investor attention and capital.
Focus on Nuclear Energy: Renewed interest in nuclear power for cleaner energy futures is propelling the sector forward.

The utility sector is outperforming high-growth areas like technology and financials, and there are three top utility stocks we believe warrant your attention.

XLU ETF: The Best Play for Broad Sector Exposure

For those keen on diversified exposure to utilities, XLU is your answer. This ETF tracks the Utilities Select Sector of the S&P 500 Index, providing coverage across various industries, including electric utilities, energy traders, and gas utilities. With nearly $19 billion in assets and a dividend yield of 2.51%, XLU offers not just diversified investment but solid income.

Currently, XLU’s portfolio leans heavily into electric utilities (57%) and multi-utilities (25.9%). Despite its impressive rally, the ETF’s Relative Strength Index (RSI) indicates that it is not yet in overbought territory, suggesting more upside could be in the cards. Analysts rate XLU as a Moderate Buy, with a consensus price target indicating further potential gains.

NextEra Energy: A Sector Giant Positioned for Growth

NextEra Energy (NYSE: NEE) stands out as a dominant force within the utility sector, serving as the largest holding in the XLU with a 14.12% stake. This powerhouse boasts a market cap of $173 billion and operates a blend of fossil-fuel and renewable energy generation. With a 2.4% dividend yield and a forward P/E ratio of 22.9, NextEra balances income with growth potential.

Its renewable energy backlog has surged to 22.6GW in Q2, up from 21.5GW in Q1, reinforcing its goal of hitting a formidable 40GW target from 2024 to 2027. Moreover, AI-driven demand and reshoring activities are expected to amplify electricity usage, benefitting NextEra. The rejuvenation of its Turkey Point Nuclear Plant’s operational license solidifies its role as a critical energy provider in South Florida. Analysts anticipate a 7.29% earnings increase this year, building upon its robust financial position.

Vistra: A Utility Stock Riding the AI Boom

Vistra (NYSE: VST) is arguably one of the most intriguing plays within utilities, with a jaw-dropping 252% surge YTD. Following a strategic pivot, notable investor Stanley Druckenmiller has recently shifted his focus from NVIDIA to accumulating shares in Vistra, signaling strong confidence in its future as an AI infrastructure player.

With a generation capacity of 41,000 MW, including 6,400 MW in nuclear energy, and the second-largest energy storage capacity in the U.S. at 1,020 MW, Vistra is perfectly positioned to capitalize on the surging power requirements of AI-driven data centers and semiconductor foundries. Analysts remain bullish, offering 10 Buy ratings with a consensus price target of $141.30, indicating about 8% upside from current levels.

Furthermore, Vistra’s acquisition of Energy Harbor earlier this year has strengthened its energy storage capabilities and bolstered its nuclear energy production, setting the stage for sustained growth going forward.

Final Thoughts

The shift toward recognizing utility stocks as growth opportunities is a notable trend in 2024. With significant contributions from AI, favorable interest rates, and a renewed emphasis on nuclear energy, the landscape is changing. Keep an eye on these stocks as they continue to carve out significant gains this year. Make sure your portfolio isn’t missing out on the utility surge!

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Utilities are Taking Over in 2024: Discover 3 Hot Stocks Ready to Explode!