We recently compiled a list of the 10 Best Utility Stocks to Buy Now. In this article, we are going to take a look at where NRG Energy Inc. (NYSE:NRG) stands against the other utility stocks. You can also check out the 20 States With the Most Expensive Electricity In The US here.
The power and utilities industry in 2023 saw mixed outcomes. Despite a 53% year-on-year drop in natural gas prices for power generation, customer bills went up by 1.9%. This increase was due to record-breaking investments of nearly $171 billion in grid modernization and decarbonization efforts, along with rising interest rates. Overall, electricity sales dipped slightly by 1.2% year-on-year (YoY).
Looking ahead to 2024, the outlook for clean energy is bright. Forecasts predict stable electricity prices alongside a 2% growth in sales. This growth is fueled by a rise in clean energy investment, from both utility companies and the government. Investments are being directed towards renewable energy generation, with solar expected to double in capacity in 2024.
The U.S. Energy Information Administration (EIA) forecasts a significant year for solar power, with utilities planning a 30% increase in capacity by adding 31 gigawatts. Wind energy is also projected to grow by 5% or 7 gigawatts. As a result, solar and wind power are set to become the dominant sources of electricity generation in the US, potentially surpassing coal. Renewables are expected to reach 18% of total generation, while coal may fall to 17%, marking a historic milestone in the transition to cleaner energy sources.
Moreover, there is a forecast of accelerating demand for electricity in the US in the next few years. According to a report by consulting firm Grid Strategies, electricity demand forecasts for 2024 have been significantly revised upward based on filings submitted to the Federal Energy Regulatory Commission (FERC) in 2023. Grid planners now anticipate a nationwide increase of 4.7% over the next five years, which is a sharp rise from the 2.6% growth projected just last year. This rise in demand is expected to be accompanied by a substantial increase in peak demand, with forecasts indicating a growth of 38 gigawatts (GW) over the next five years.
This increase in electricity demand is driven by multiple factors. Industrial facilities, manufacturing plants, and data centers are experiencing a construction boom, with data centers in some areas like Virginia seeing unprecedented growth at 6% to 8% every year. Electric vehicles are also expected to contribute to the demand increase as BloombergNEF (BNEF) forecasts a 20% YoY increase in global battery electric and plug-in hybrid vehicle sales in 2024.
On the supply side, challenges remain. According to Senior Partner for Energy & Utilities at West Monroe, Danny Freeman, utilities are going to prioritize grid reliability and resilience in response to climate change. Extreme heat and drought are likely to continue disrupting power generation in 2024, with summer 2023’s record-breaking heat likely marking the start of a long-term trend.
The American West is facing its driest period in 1,200 years, and researchers predict a long-term pattern of aridification. These conditions can significantly reduce power output, especially during peak demand periods. Thus, the Department of Energy (DOE) awarded $3.5 billion in October 2023 to projects that will improve grid flexibility and resilience. The funding for this project is provided by the Grid Resilience Program (GRIP), created by the Infrastructure Investment Jobs Act (IIJA).
The rapid transformation of the utilities sector presents many exciting opportunities for investors. With this context in mind, let’s take a look at the 10 best utility stocks to buy now.
Our Methodology
To shortlist the best utility stocks, we relied on Insider Monkey’s database of 920 hedge funds as of Q1 2024 to analyze the hedge fund sentiment for each stock. We picked the utility stocks with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Close up image of an engineer inspecting the control panel of a modern power plant.
NRG Energy Inc. (NYSE:NRG)
Number of Hedge Fund Holders: 44
NRG Energy Inc. (NYSE:NRG), a North American energy and home services company, offers electricity, natural gas, and home security solutions. It generates power from various sources including coal, solar, and natural gas. This company caters to residential, commercial, and industrial customers across the US and Canada. Its well-known brands include NRG, Reliant, Direct Energy, Green Mountain Energy, and Vivint.
NRG Energy Inc. (NYSE:NRG) reported a strong Q1 2024 with a net income of $511 million, reversing a loss from the same period last year. Adjusted EBITDA climbed to $849 million during Q1, up from $646 million in Q1 2023. The company has expressed optimism about future prospects, citing strong performance and promising growth opportunities ahead.
Furthermore, NRG Energy Inc. (NYSE:NRG) successfully completed its previously announced $950 million accelerated share repurchase program, buying back shares at an average price of $50.43 per share. Additionally, it reaffirmed its commitment to capital allocation in 2024, with plans to allocate an additional $825 million towards share repurchases.
Analysts have given NRG Energy Inc. (NYSE:NRG) stock a “Moderate Buy” rating with an average price target of $87.4. The price target reflects an upside potential of over 9% from the current price levels. NRG Energy Inc. (NYSE:NRG) ranks sixth on our list of the best utility stocks to buy now.
Overall NRG ranks 6th on our list of the best utility stocks to buy. You can visit 10 Best Utility Stocks to Buy Now to see the other utility stocks that are on hedge funds’ radar. While we acknowledge the potential of NRG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NRG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.