The market continues to be a bit unpredictable, with even the biggest tech stocks seeing shares wobble both here and in the United States. But there has been at least one sector that’s been seeing renewed interest, and that’s utility stocks.
Utilities led the way in the most growth last week, seeing overall growth of about 1.15%. Sure, that’s not much, but that’s an average. And if you look at the other industries, many were down. So, let’s look at what’s happening and a utility stock I’d pick up on the TSX today.
What happened?
It looks as though the TSX today has been seeing support from utility stocks for at least the last week, with investors remaining cautious. This continues especially as we saw United States inflation data come in higher than anticipated.
Inflation hit 3.1% in January, higher than the expected 3% by economists but still lower than December levels. Even so, this led to a drop in the overall market and a rise in utility stocks — stocks that traditionally provide safe havens during market volatility but have been volatile themselves in the past.
When the market started to drop back in 2022, utility stocks saw a surge in interest. This came as investors wanted exposure to companies that would continue to be used no matter what. However, these quickly became overvalued, leading to a drop in the industry. Yet now, it looks like we’re back.
Return to normalcy
Honestly, it looks like this sector is just seeing a return to normal — especially as interest rates and inflation look to be coming down in the near future. As this happens, utility companies will be able to expand once more with lower interest rates.
Meanwhile, the overall support of these companies as strong investments remains the same. Utility stocks provide long-term contracts where companies and countries sign up for years, if not decades, of use. However, not all are the same.
In fact, there are certainly utility stocks out there that are less of an option for long-term holders. These would be the ones with exposure to natural gas. Instead, I would be looking at companies already seeing growth thanks to renewable energy investments. And there is one I would consider above the rest.
Hydro One
As the market recovers, and utility stocks lead the charge (at least, the most stable charge), I would look to Hydro One (TSX:H) as a strong option. Hydro One stock may be new on the scene in terms of share growth. However, it’s proven to be a force to be reckoned with.
The company is supported by a major stake held by the province of Ontario. Further, it gets its power from hydroelectricity, a renewable source that supports the company. This means there aren’t going to be any surprises in a renewable-energy-focused future.
Yet shares of Hydro One stock still offer value. Shares are up 10% in the last year. That growth has been quite stable as well, compared to other utility companies that saw a plunge in share price. So, you can gain stable growth, as well as a dividend yield currently at 2.97% as of writing. Therefore, this is the utility stock I would certainly consider as we continue to see a rebound in the market.
