NextEra’s Earnings Portend Well for Utilities and Renewable Energy
Heading into Q1 earnings reporting season, the big question for electric utilities was how big a hit COVID-19 fallout would deliver to demand for power. Now we have answers from first reporter NextEra Energy (NYSE: NEE).
NextEra Energy: Best in Class, But at a Price
NextEra Energy has a very attractive long-term growth profile. But it’s quite vulnerable to a selloff if the sky-high expectations baked into the share price are punctured. One good alternative is its NextEra Energy Partners (NYSE: NEP) unit. The dividend is two percentage points higher with an identical PG&E bankruptcy-proof long-term growth rate.
Energy: In the Early Stages of a Bull Market
For the broader market, we’ve long followed a concept we call the “volatility smile.” Simply put, broader stock market volatility is high early in the stages of a bull market, falls to low levels in the middle of a major rally and then rises again in the latter stages of a bull market. And, of course, volatility usually rises sharply during a bear market.
The Case for Energy Stocks in 2018
Energy stocks are off to a strong start this year, and we expect the S&P 500 Energy Index to be among the top third of S&P 500 sectors in terms of total returns this year.
Our Current Outlook in a New Year
The recent upsurge in commodity prices and early signs of a pick-up in inflationary pressure could indicate that the bull market has entered its latter stages. However, until market leadership narrows or our favorite forward-looking economic indicators exhibit signs of deterioration, we’re inclined to regard dips as opportunities on the long side.
Utilities and the Internet of Things
Access to relatively inexpensive sensor content, data storage, processing power and high-capacity telecom networks has enabled a new era of machine-to-machine communication that can unlock significant efficiencies for industries rooted in the physical world. The rollout of 5G communications networks over the next few years will enhance remote monitoring and other long-distance IOT functionalities.