Utility stocks are less affected by market volatility because of their intrinsic defensive nature. They protect investments when things are not going well. Whatever the state of the economy, a household or a business needs its electricity, water, or gas supplies. After the 2008 subprime crisis, the Fed cut interest rates to stimulate the economy. On cue, investors flocked to utilities, which are viable defensive choices during macroeconomic downturns.
The U.S. utilities sector has experienced a notable rise in 2025, primarily led by macroeconomic, regulatory, and market-specific dynamics that have reignited investor interest. The biggest factor bolstering the sector is the growing appeal of defensive stocks in a climate of uncertainty. With lingering concerns about inflation, potential rate adjustments by the Fed, and geopolitical instability, investors have been gravitating toward sectors that offer stability and predictable cash flows. The S&P 500 Utilities Select Sector SPDR (XLU) has advanced 9% as of May 2025. Consequently, stocks like Southwest Gas Holdings, Inc. SWX, New Jersey Resources Corporation NJR and Telenor ASA TELNY have emerged as good investment prospects.
Falling treasury yields in recent months have further improved the relative attractiveness of dividend-paying stocks, including those in the utilities sector. With yields on government bonds becoming less competitive, investors have been drawn toward utility stocks, which often come with steady and relatively high dividends.
On the flip side, the imposition of 25% tariffs on steel and aluminum imports by the Trump administration has escalated costs for essential materials used in utility infrastructure, such as transformers and transmission towers. While the United States imports most of its transformers, primarily from Mexico, these tariffs have strained supply chains and increased project expenses. Also, tariffs on Canadian imports have led to higher electricity and fuel costs, particularly in northern states reliant on cross-border energy supplies. Yet, the market uncertainty related to tariffs has ensured that investors flock to defensive haven like utilities.
Additionally, utilities are usually considered long-term buy-and-hold options as they regularly declare dividends, and dividend yields on utility stocks are generally higher than those paid by other equities. In this environment, utility stocks provide much-required stability and growth potential. Hence, astute investors should consider such stocks at present.
Our Choices
The stocks below have a Zacks Rank #1 (Strong Buy) or #2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here, V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of these three metrics. Such a score allows one to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here.
Southwest Gas is a distributor and transporter of natural gas. SWX’s expected earnings growth rate for the current year is 17.7%. The Zacks Consensus Estimate for its current-year earnings has improved 4.8% over the past 60 days. This Zacks Rank #2 company has a VGM Score of B.
New Jersey Resources is a distributor of natural gas. NJR’s expected earnings growth rate for the current year is 9.9%. The Zacks Consensus Estimate for its current-year earnings has improved 2.9% over the past 60 days. This Zacks Rank #2 company has a VGM Score of A.
Telenor is a global telecommunications company. TELNY’s expected earnings growth rate for the current year is 17.1%. The Zacks Consensus Estimate for its current-year earnings has improved 3.8% over the past 60 days. This Zacks Rank #1 company has a VGM Score of B.
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Southwest Gas Corporation (SWX): Free Stock Analysis Report NewJersey Resources Corporation (NJR): Free Stock Analysis Report Telenor ASA (TELNY): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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