While there is more to the crash and burn of oil stocks over the past week than the recent flare up of U.S.-China trade tensions, the fact remains that uncertainty is stomping around in the markets like a toddler intent on ruining everyone else’s fun. CNN’s Fear and Greed Index is currently poised at “fear” — a fairly good barometre of investor sentiment south of the border — while the TSX Composite Index is down 0.42% in the last five days.
Should investors batten down the hatches and hide in classically defensive utilities stocks — just without the oil? It seems a prudent idea, and with so many options beyond oil-weighted tickers, let’s take a look at two “clean” energy stocks known for their protective qualities.
Fortis
You can’t fault the track record for this ultra-defensive dividend stock: though Fortis’s (TSX:FTS)(NYSE:FTS) one-year past earnings-growth rate of 9.7% is perhaps not significantly high in the grand scheme of things, it represents solid growth in a highly competitive field, while an overall five-year average earnings-growth rate of 23.6% qualifies as moderately high growth.
One of the best metrics a highly cautious investor can make use of when calculating stocks to shelter them from shifts in the market is the beta. While a 36-month beta is often used, a five-year beta can give a clearer snapshot of long-term market performance. Relative to the TSX index as a whole, Fortis has an exceptionally low five-year beta of 0.07, indicating a stock well-insulated against market vagaries.
Value investors may find themselves on the fence here, however, with some wildly different indicators in the data. For example, Fortis has a price-to-book of 1.5, which is only a shade above market-weight. At a glance, this would make it seem that Fortis is excellent value for money. Looking at its value in terms of earnings, a P/E of 19.9 times earnings likewise looks acceptable.
However, the growth-focused investor may turn their nose up at a price-to-growth multiple of 4.4, which indicates that Fortis is not quite the steal it appears when it comes to growth; meanwhile, at $50.68 a pop, its share price is around five times the future cash flow value. In other words, while the passive-income investor may well find that the above adds up to decent value for money, a capital gains investor may conclude that there is little upside to be gleaned here.
Algonquin Power & Utilities
Up 0.64% in the last five days and still gently climbing, this popular stock is in favour with passive-income investors looking to get defensive with their dividend-growth portfolios. A leading green and clean energy stock, Algonquin Power & Utilities’s (TSX:AQN)(NYSE:AQN) returns of 22.7% over the past year beat the Canadian alternative energy average of 7.3% by a decent margin.
With a price-to-earnings ratio of 27 and P/B of 1.9 times book, Algonquin Power & Utilities is still fairly good value for money; indeed, with a one-year past earnings growth of +600% and estimated 17.5% annual growth in earnings over the next three years, this could be the best value investors are likely to see here.
The bottom line
For strength and security, Fortis is a buy at almost any valuation: its outperforming returns of 20.9%, tasty yield of 3.54%, and expected 4.5% annual growth in earnings all underline this in no uncertain terms. Meanwhile, stacking shares in Algonquin Power & Utilities can round out the energy section of a passive-income portfolio, bringing in a handsome dividend yield of 4.81%, while adding exposure to the green power sector.
