The global financial market conditions remain choppy thanks to the ongoing crude price volatility, lower-than-expected recovery in some regions and Britain’s vote to exit the EU. The upcoming U.S. Presidential Election is further contributing to the uncertainty, while the strong dollar continues to hurt U.S. manufacturers by making their products costlier than their global peers.
In such a scenario, investing in fundamentally strong but undervalued stocks might be a prudent option. Utilities typically have stable cash flows that ensure regular dividends, making them a popular target for those seeking safety and high returns.
Utilities also benefit from the domestic orientation of their business, which shields them from foreign currency translation issues — a major headwind for many other industries. These companies provide basic services like electricity, gas and water, which is why they can never go out of business.
Let’s focus on a few utility stocks with a low P/E ratio, which enjoy a reputation for safety even when markets are volatile.
The P/E Ratio
The price/earnings ratio or the P/E ratio is a widely used criterion for selecting stocks. This metric actually depicts how much an investor needs to pay for one dollar of the company’s earnings. Higher the P/E ratio, higher the investor has to pay for each dollar of the company’s earnings.
Meanwhile, the utility sector, being a very mature and stable one, boasts a lower P/E multiple compared with most other sectors. Thus, low P/E utility stocks are sure to offer safe but high returns on low investment.
Note that the Dow Jones Utility Average (DJU) has returned 19.6% year to date, compared with the S&P 500’s 8.8%.
Picking Low P/E Stocks
We have selected utilities with a P/E (F1) less than 15, while the prevailing utility average stands higher at 17.6.
Apart from the above criterion, we also sought help from our proprietary Style Score System. Thanks to this scoring system, we have been able to pinpoint a few stocks with incredible near-term growth potential.
To sum it up, 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’ and a P/E ratio of 10.91. You can see the complete list of today’s Zacks #1 Rank stocks here.
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. Its long-term earnings growth is pegged at 9.51%.
This Zacks Rank #2 stock has a VGM score of ‘A’ and a P/E ratio of 11.68.
Korea Electric Power Corporation KEP an integrated electric utility company that generates, transmits and distributes electricity in Korea and other countries. Its long-term earnings growth is pegged at 25.0%.
This Zacks Rank #2 stock has a VGM score of ‘A’ and a P/E ratio of 5.06.
Telecom Argentina S.A. TEO offers basic telephone service and fixes telecommunications links in the northern region of the Argentine Republic. Its long-term earnings growth is pegged at 10.69%.
This Zacks Rank #2 stock has a VGM score of ‘B’ and a P/E ratio of 12.93.
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