Energy Stock for September Options Bulls

Subscribers to Chart of the Week received this commentary on Sunday, August 31.

As we’ve covered for the last 12 months, utility stocks have been having a moment, as AI data centers require a massive amount of energy resourcing. Utility staples such as Southern (SO), Duke Energy (DUK), and EQT (EQT) are scrambling to accommodate for electricity demand increases, creating opportunity for companies that pivot to AI quickly and efficiently.

One stock that has faithfully rewarded investors – and could continue to do so – is Texas-based Vistra Corp (NYSE:VST). Per Schaeffer’s Senior Quantitative Analyst Rocky White VST is the only utility-based name on the list, but the best-performing stock in general in September over the last decade.

Since its restructuring and public launch in 2017, VST has averaged a 4.4% return during the month of September, finishing higher 63% of the time. The equity fell 3.9% on Friday, providing an even better entry point for investors looking to buy the dip. VST is up 121% over the past 12 months and not long off tapping an Aug. 5 record high of $216.85.

Options look affordably priced, too, making this an excellent time to bet on the equity's next move. In fact, Vistra stock’s Schaeffer's Volatility Index (SVI) of 47% stands in the 8th percentile of readings from the past year. The equity has also tended to outperform volatility expectations over the past year, as suggested by its Schaeffer's Volatility Scorecard (SVS) of 76 out of 100.

Monday will bring a new week and month, though the Labor Day holiday will usher in the start of trading on Tuesday. September will be a big mover for investors, as eyes remained laser-focused on the incoming Federal Reserve meeting, where a 25 basis-point rate cut is widely expected. The Fed’s favorite inflation indicator, the personal consumption expenditures (PCE) price index, showed a 2.6% increase in July on Friday. Incoming jobs data for August alongside a fresh consumer price index (CPI) reading will be deciding factors in where the Fed leaves inflation.

Utility stocks will quickly see the broader impact of rising borrowing costs and operating expenses for an already weighed-down AI dominated ecosystem. Searching for a safe utility bet for bulls might be tough in this climate, but if White’s quantitative research is any indicator, Vistra stock could attempt to pare back some of this risk.