3 Utility Stocks to Protect Your Portfolio as Inflation Rises in January

Wholesale prices increased at a faster pace than expected in January, dashing hopes of inflation easing. Stocks have already been under pressure over the past few weeks, due to a tech selloff. All three major indexes suffered, giving up most of the gains for the year in February.

Also, a shrinking labor market has raised concerns over the economy’s health and raised fears of a recession.

Given this situation, investors may want to focus on defensive stocks from the low-beta category (beta greater than 0 but less than 1) — especially from the utility sector — to help cushion against market swings. Our picks from such stocks are Atmos Energy Corporation ATO, Consolidated Water Co. Ltd. CWCO and Fortis, Inc. FTS. These stocks also boast a high dividend yield.

Wholesale Inflation Jumps

The Labor Department reported last week that the producer price index (PPI) rose 0.5% sequentially in January, sharply higher than the consensus estimate of a rise of 0.3%. On a year-over-year basis, PPI rose 2.9% in January.

Core PPI, which excludes the volatile energy and food, jumped 0.8% month over month in January after increasing 0.6% in December, and came in higher than the analysts’ expectation of a gain of 0.3%. Year over year, core PPI rose 3.6% in January.

Both the core and headline figures were sharply higher than the Federal Reserve’s 2% target. Needless to say, inflation remains elevated and higher prices continue to pose a challenge for both the economy and the Federal Reserve.

The Federal Reserve left interest rates unchanged at its current range of 3.25-3.5% in its January FOMC meeting after slashing rates by a total of 75 basis points three times in 2025. Markets have been optimistic that the Fed would go for more than one rate cut this year, but the latest reading might dent investors’ sentiment.

A shrinking labor market has already been weighing on consumer confidence. Also, a recent tech selloff sparked by fears of AI disruptions has unsettled markets. The ongoing concerns could keep markets volatile for a longer period.

3 Low-Beta Utility Stocks With Upside

Atmos Energy Corporation

Atmos Energy Corporation, along with its subsidiaries, is engaged in the regulated natural gas distribution and storage business. ATO serves nearly 3.3 million customers in more than 1,400 communities across eight states from the Blue Ridge Mountains in the East to the Rocky Mountains in the West. Atmos Energyoperates more than 73,000 miles of transmission and distribution lines as well as 5,700 miles of interstate pipelines.

Atmos Energy has an expected earnings growth rate of 9% for next year. The Zacks Consensus Estimate for current-year earnings has improved 1% over the last 60 days. Atmos Energy has a beta of 0.74 and a current dividend yield of 2.14%.

Consolidated Water Co. Ltd.

Consolidated Water Co. Ltd., along with its subsidiaries, is involved in the development and operation of seawater desalination plants and water distribution systems in areas where naturally occurring supplies of potable water are scarce or nonexistent. CWCO also focuses on expanding operations in areas with a large proportion of tourist properties and a growing population.

Consolidated Water Co. has an expected earnings growth rate of 11.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last 60 days. Consolidated Water has a beta of 0.50 and a current dividend yield of 1.48%.

Fortis, Inc.

Fortis, Inc. s engaged in the electric and gas utility business. FTS offers regulated utilities comprising electric and gas, as well as engages in non-regulated hydroelectric operations. Fortis operates primarily in Canada, the United States and the Caribbean.

Fortis has an expected earnings growth rate of 5.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.9% over the last 60 days. Fortis has a beta of 0.49 and a current dividend yield of 3.24%.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research