The Utility sector is a popular safe haven for investors seeking shelter, as the global economic outlook worsens and recession looms. AGL Energy Limited (ASX:AGL) and Contact Energy Limited (ASX:CEN) are among analysts’ favourite utility shares, according to TipRanks insights.
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Why utilities appeal to investors in tough times
As central banks rush to combat soaring inflation with interest rate hikes, investors fear a looming recession. In a recession, widespread job losses often lead to households cutting their spending. That can in turn reduce sales for businesses across the board.
Even as they slash their budgets in recession belt-tightening, households still need to pay for electricity and water. As a result, utility companies can fare better than others even in an economic downturn.
Indeed, there has been a move to utilities stocks in recent times amid a darkening economic outlook. The S&P/ASX 200 Utilities (XUJ) index rose more than 1% on Wednesday and has gained about 2% in the past week, at a time when most sectors are down. Moreover, Utilities is also analysts’ top sector, containing the most number of stocks with Buy ratings, according to TipRanks insights. Let’s take a closer look at ASX utility shares AGL Energy and Contact Energy.
AGL Energy’s share price prediction suggests 28% upside potential
AGL Energy is an Australian electricity and gas wholesaler and retailer. Its shares have climbed about 10% since the beginning of the year. According to TipRanks’ analyst rating consensus, AGL Energy stock is a Moderate Buy based on four Buys and three Holds. The average AGL Energy share price prediction of AU$8.60 implies over 27% upside potential.
Moreover, AGL Energy scores a “Perfect 10” from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
Contact Energy share price forecast indicates 58% upside potential
Contact Energy is a New Zealand electricity generator and distributor, operating in wholesale and retail market segments. According to TipRanks’ analyst rating consensus, Contact Energy stock is a Moderate Buy. The average Contact Energy share price forecast of AU$10.29 implies over 58% upside potential.
Closing remarks
In the event of a recession, AGL Energy and Contact Energy may not completely go unscathed. However, analysts believe they are a good defensive play in rough times.
