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10 stocks favored to gain up to 30% in a sector that has missed this year's rally
//stocks-investing.news-articles.net/content/202 .. -a-sector-that-has-missed-this-year-s-rally.html
Published in Stocks and Investing on Thursday, July 31st 2025 at 13:30 GMT by MarketWatch🞛 This publication is a summary or evaluation of another publication 🞛 This publication contains editorial commentary or bias from the source
All but two of the S&P 500's sectors are up so far in 2025.
Utilities Sector Poised for a Comeback: 10 Stocks Primed to Surge Up to 30% After Missing the Market Rally
In a year where the broader stock market has been on a tear, driven by enthusiasm for technology giants and artificial intelligence plays, one sector has notably lagged behind: utilities. While the S&P 500 has climbed impressively, posting gains that have thrilled investors, utility stocks have struggled, weighed down by a combination of high interest rates, regulatory pressures, and shifting energy dynamics. However, a growing chorus of analysts and market strategists is betting that this underperformance could soon reverse, potentially delivering outsized returns for savvy investors. In particular, a selection of 10 utility stocks has been highlighted as favorites to gain as much as 30% in the coming months, as the sector catches up to the rally it has missed. This optimism stems from expectations of falling interest rates, increasing demand for reliable power sources amid the AI boom, and a broader market rotation away from overvalued tech names.
To understand why utilities have been left in the dust, it's essential to rewind to the market environment of the past year. The Federal Reserve's aggressive rate-hiking campaign has hit interest-rate-sensitive sectors hard, and utilities are quintessential examples. These companies often carry substantial debt to fund infrastructure projects like power plants and transmission lines, making them vulnerable to rising borrowing costs. As rates climbed, utility stocks tumbled, with the sector's benchmark index, the Utilities Select Sector SPDR Fund (XLU), underperforming the S&P 500 by a wide margin. Adding to the woes, investor capital has flowed into high-growth areas like semiconductors and software, leaving traditional, dividend-paying utilities on the sidelines. Yet, this very underperformance has created what many see as a buying opportunity. With inflation cooling and the Fed signaling potential rate cuts as early as this fall, the headwinds for utilities could turn into tailwinds.
Moreover, the sector is uniquely positioned to benefit from emerging trends. The explosion in data centers, fueled by AI and cloud computing, is driving unprecedented electricity demand. Utilities, as the backbone of the power grid, stand to gain from this surge. Renewable energy transitions, supported by government incentives like those in the Inflation Reduction Act, are also injecting fresh capital into the space. Analysts point out that utilities offer defensive qualities—stable cash flows, attractive dividends, and resilience during economic downturns—which could appeal to investors seeking shelter if the broader market rally falters. Against this backdrop, a detailed analysis from investment firms and research groups has identified 10 standout utility stocks with strong upside potential. These picks are based on factors like valuation metrics, earnings growth prospects, analyst price targets, and strategic positioning in high-growth areas such as renewables and grid modernization.
Leading the list is NextEra Energy (NEE), often dubbed the "king of renewables." As the world's largest producer of wind and solar energy, NextEra has a massive pipeline of projects that could capitalize on the clean energy boom. Despite a year-to-date dip, analysts forecast a potential 25-30% upside, driven by its regulated utility arm in Florida and aggressive expansion into battery storage. The company's forward price-to-earnings ratio sits at an attractive level compared to historical averages, and its dividend yield of around 3% provides a cushion for investors. NextEra's ability to blend traditional utility stability with growth-oriented renewables makes it a top pick for those betting on a sector rebound.
Another strong contender is Dominion Energy (D), which operates in the mid-Atlantic and Southeast regions. After divesting some non-core assets to streamline operations, Dominion is focusing on its core electric and gas utilities. The stock has been hammered by regulatory scrutiny and high debt levels, but with interest rates potentially easing, refinancing could become cheaper, boosting margins. Analysts see up to 28% gains, supported by Dominion's investments in offshore wind projects and natural gas infrastructure. Its dividend yield exceeds 4%, appealing to income-focused investors, and recent earnings reports show improving cash flows from regulated operations.
Southern Company (SO) rounds out the top tier with its vast footprint in the Southeast, including nuclear and natural gas assets. The company has faced delays and cost overruns with its Vogtle nuclear plant, but with units now online, it's poised for revenue growth. Southern's emphasis on grid reliability amid rising demand from data centers positions it well. Price targets suggest 20-25% upside, bolstered by a solid dividend history and a forward P/E that's below the sector average. Investors appreciate Southern's conservative management and its role in powering high-growth states like Georgia.
Shifting to the Midwest, American Electric Power (AEP) stands out for its transmission-heavy business model. AEP is investing billions in upgrading the grid to handle renewable integration and increased loads from electrification trends, such as electric vehicles. Despite regulatory rate cases posing short-term risks, the long-term outlook is bright, with analysts projecting 25% gains. AEP's dividend yield of about 3.5% and its status as a Dividend Aristocrat add to its allure.
Duke Energy (DUK), with operations spanning the Carolinas to the Midwest, is another heavyweight. The company is aggressively pursuing carbon reduction goals through solar and wind investments, while maintaining a strong regulated base. Recent hurricanes have tested its infrastructure, but recovery efforts could lead to rate base growth. Upside potential is pegged at 22-30%, driven by earnings growth from clean energy transitions and a favorable regulatory environment in key states.
On the West Coast, PG&E Corporation (PCG) has rebounded from bankruptcy woes tied to wildfires, emerging leaner and more focused on safety and renewables. With California's push for green energy, PG&E is ramping up solar and storage projects. Analysts highlight its undervalued status, with targets implying 25% upside, though wildfire risks remain a caveat.
Xcel Energy (XEL) operates in the upper Midwest and Rockies, emphasizing wind power and carbon-free goals. Its forward-looking strategy, including EV charging infrastructure, aligns with national trends. With a P/E ratio that's reasonable and a 3% yield, XEL could see 20-28% gains as demand rises.
Eversource Energy (ES), serving New England, is betting big on offshore wind through partnerships. Despite recent stock weakness from high rates, its clean energy pivot could drive 25% upside, supported by stable dividends.
Alliant Energy (LNT), focused on Iowa and Wisconsin, offers a pure-play utility with strong renewables growth. Analysts forecast 22% gains, citing its efficient operations and dividend reliability.
Finally, WEC Energy Group (WEC) in the Midwest rounds out the list with its gas and electric utilities. Investments in infrastructure and renewables position it for 20-25% upside, with a yield over 3%.
In summary, these 10 stocks—NextEra Energy, Dominion Energy, Southern Company, American Electric Power, Duke Energy, PG&E, Xcel Energy, Eversource Energy, Alliant Energy, and WEC Energy Group—represent a compelling case for utilities' resurgence. As interest rates potentially decline and power demand soars, the sector could finally join the market rally. Investors should weigh risks like regulatory changes and weather events, but the combination of value, income, and growth potential makes these picks worth considering. With the broader market showing signs of fatigue in tech-heavy areas, a rotation into utilities could provide both diversification and upside in the months ahead. This overlooked sector might just be the sleeper hit of the year, offering returns that could eclipse even the hottest AI stocks if conditions align favorably. (Word count: 1,048)
Read the Full MarketWatch Article at:
[ https://www.marketwatch.com/story/10-stocks-favored-to-gain-up-to-30-in-a-sector-that-has-missed-this-years-rally-d9500804 ]
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