Stock Analysis & Ideas

2 Utilities Stocks to Buy to Bank on Millennial Migration

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With various vagaries in the market, confused investors may want to target compelling utility stocks to buy. Not only does the underlying sector feature “always-on” relevance, but millennial migration trends also bode well for DUK and CNP shares.

When faced with ambiguities or downright severe volatility risks, investors committed to staying in the markets should focus their attention on fundamentally relevant and resilient ideas. Few categories command as much confidence as utility stocks to buy. In addition, economic conditions that sparked millennial migration trends bode very well for the subject of this article – stock tickers DUK and CNP.

Against a broader view, the companies that undergird the biggest or the most intriguing utility stocks inherently enjoy a baseline of inelastic demand or demand that stays relatively the same irrespective of price increases or decreases. To be clear, higher prices do negatively impact energy or resource use. However, the bare minimum consumption trend will largely remain the same.

In other words, if households don’t pay their bills, they will lose access to power and/or other critical services. Particularly with electricity loss, the impact in the context of a modern economy could be devastating.

Another catalyst for utility stocks to buy – and the main focal point here – stems from millennial migration trends. Back before the COVID-19 pandemic, multiple research papers and surveys revealed that young professionals were already migrating away from traditional economic hubs like New York City and Chicago. In their stead, millennials began moving to cities in states like Texas, Colorado, Washington, and Arizona.

Typically featuring much lower costs of living, the sudden spike in housing prices during the worst of the global health crisis further incentivized the aforementioned migration trajectory. Given the drastic difference in housing prices – where the average home in Los Angeles lists for around $1 million – millennials found smaller regional living much more suitable and sustainable.

Currently, the main headwind impacting the housing sector isn’t just about elevated prices but sharply rising interest rates. With the cost of borrowing having skyrocketed from prior lows, many would-be homebuyers are finding themselves priced out again, this time from a different angle. Either way, young professionals have the same incentive to look for a cheaper environment.

Structurally, this dynamic bolsters the case for geographically advantaged utility stocks to buy. Below are two examples to consider.

Duke Energy (NYSE: DUK)

An electric power and natural gas holding company headquartered in Charlotte, North Carolina, Duke Energy presents a very attractive profile under almost any circumstance. Since hitting a lull during the spring doldrums of 2020, Duke consistently expanded its revenue channel. In addition, the utility firm features a forward yield of 3.9%.

Fundamentally, though, arguably the most exciting catalyst for Duke Energy centers on its coverage map. Serving both North and South Carolina, the company also provides utility solutions for Florida, Indiana, Kentucky, and Ohio. In particular, the Carolinas tend to attract young professionals because of the lower cost of living. For example, the difference between the median home cost of residential real estate in Raleigh, North Carolina, and Los Angeles, California, is approximately a factor of 2.55.

On the financial side, Duke’s revenue for the pandemic-disrupted year of 2020 was $23.9 billion, down about 5% against the prior year’s tally. However, in 2021, Duke posted top-line sales of over $25 billion. Against a trailing-12-month (TTM) basis, the company is looking at $27 billion in revenue.

Is DUK Stock a Buy or Sell?

Turning to Wall Street, DUK stock has a Hold consensus rating based on one Buy, six Holds, and zero Sell ratings. The average DUK price target is $114.86, implying 13.9% upside potential.

CenterPoint Energy (NYSE: CNP)

One of the top utility stocks to buy with a vast footprint, CenterPoint Energy provides electricity and natural services. It covers several markets in Indiana, Ohio, Louisiana, Minnesota, Mississippi, and Texas. Similar to other utility plays, CenterPoint pays a dividend, though, at a forward yield of 2.3%, it’s not quite as generous as Duke Energy.

Nevertheless, investors will likely be targeting CenterPoint for its home market of Houston, Texas. A MyMove study evaluating costs of living in 2022 revealed that California has a cost index of 151, whereas Texas has a reading of only 91.5. A separate research item discovered that Los Angeles is 74.5% more expensive than Dallas, reflecting major differences between the Golden State and the Lone Star State.

In 2020, CenterPoint posted revenue of $7.42 billion, down about 2% against the prior year’s tally. However, in 2021, the company rang up sales of $8.35 billion. On a TTM basis, CenterPoint is looking at a top-line reading of $8.77 billion.

Is CNP a Good Stock to Buy?

Turning to Wall Street, CNP stock has a Strong Buy consensus rating based on seven Buys, two Holds, and zero Sell ratings. The average CNP price target is $33.50, implying 9.8% upside potential.

Conclusion: Go Where the Demand Heads

While investors might not go wrong betting on investments centered geographically on the economic powerhouses of the U.S. and across the world, they may find better opportunities targeting companies that are set to enjoy an influx of workers, particularly younger workers. Therefore, you can add to the already-relevant profile of utility stocks to buy with tickers like DUK and CNP, which incorporate favorable migration trajectories.

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