Utility Stocks Increase From Dismal 2023

The demand for energy continues to rise across the United States, especially in Texas, creating new opportunities for energy producers and investors.

The U.S. Energy Information Administration (EIA) predicts energy consumption will increase as much as 15% through 2050 and electricity plays an increasingly large role.

Electric Reliability Council of Texas (ERCOT) President and CEO Pablo Vegas unveiled a “New Era of Planning” initiative recently, predicting tremendous electric demand growth in the next 5-7 years. In addition to utilizing the tools from the last two Texas legislative sessions, ERCOT is focused on changing transmission planning processes to adapt to the changing grid and exploring new opportunities to stay ahead of the growth curve.

Utility stocks, which declined 13% in 2023, have become a leading sector by investors since January.

“The climb in shares of power companies is in part a rebound from a bleak 2023,” the Wall Street Journal reported. “But their move upward also reflects the growing belief that the U.S. economy can power through higher interest rates and turn the hype around artificial intelligence into reality.”

“Data in recent weeks has shown job growth cooling and inflation resuming its gradual slowdown without any alarming deterioration in economic conditions. That has turned power generators, which are set to supply a wave of increasingly energy-hungry data centers needed for AI, into a bank-shot bet on the projected tech boom,” the WSJ reported.

The S&P 500’s typically staid utility sector has advanced 18% over the past three months, while the second-place information-technology industry has climbed 11%, the WSJ stated.

The newspaper singled out Texas-based Vistra, which generates and sells electricity and natural gas to residential customers from California to Maine, as increasing its stock value by 145% since January.

Oil company stocks, which also were dismal mid-year 2023, began to reverse in January.  The stock of both of the U.S. based intergraded oil companies have increased this year. ExxonMobil is up 19%, and Chevron is up 7%.

Many independent exploration-and-production (E&P) companies also have increased stock values this year. Marathon Oil Corp. and Diamondback Energy are leading the group, jumping 39% and 29%, respectively. Other E&P companies showing double-digit increases are Pioneer Natural Resources at 17%, Devon 13%, ConocoPhillips 12%, and Occidental Petroleum at 12%.

Many factors can be attributed to the recent interest in these companies by investors, including projected growth in global demand, reduced supply of petroleum from OPEC+, increased supply from U.S. companies, and international conflicts, especially in Europe and the Middle East.

Alex Mills is the former President of the Texas Alliance of Energy Producers.