America is coming to the rescue…
The global economy is in trouble – big trouble. The China “miracle” is becoming the China anchor. Japan has been mired in a zero-growth environment for years.
There are too many fundamental problems with the Eurozone to mention here. Why do you think Britain is leaving?
What about Russia?
While U.S. President Donald Trump loves Russia, one oil price plunge could sink its economy.
Put it all together, and no wonder global interest rates are so low.
And all through last year, the United States was increasing rates. We are not in sync with the rest of the globe, and that is a big problem.
Thankfully, that was 2018.
This year, the U.S. Federal Reserve is waking up, and stocks are soaring. Despite a dip in May, the S&P 500 is still up more than 15% in 2019.
But if you look closely, there is one category of stocks working better than others. It may be surprising to many, but it’s the utility sector.
Investors have cheered the fact that bond rates are falling and likely to fall further.
Some even predict the 10-year Treasury will drop below 2% as the drama continues to unfold.
The support of the market by the Federal Reserve has been one of the main investing themes of 2019.
Unfortunately, adjusting to the global rate environment will not be pain-free. Of course, there is a ceiling on just how high stocks can go.
Lower rates at home will put pressure on the dollar. Those lower rates will also likely stoke inflation, which is considered a bad thing for the economy. Add in the age of the current bull run, and it is reasonable to wonder if stagflation is just around the corner.
The antidote of course is utility stocks and the dividends they pay.
These utility stocks will provide solid dividend payments along with modest gains going forward. Defensive positions like this will continue to be in high demand as rates remain low.
The further rates go down, the higher utility stocks will go.
So it’s not surprising that the Money Morning Stock VQScore™ loves utility stocks right now.
Here are two of the highest-rated utility stocks to buy now as bond rates free fall…
Stocks to Buy as Bond Rates Continue Free-Falling, No. 2
Emerging markets have been crushed by the difficulties of growing their economies in a high U.S. rate environment.
Capital has flowed to the United States, making it the big winner in 2019. But the losers have been emerging market stocks.
In the utility space, owning an emerging market stock like Chile’s Enel Americas SA (NYSE: ENIA) is a great idea.
Since early this year, when U.S. interest rates were at their peak, shares of Enel have been in bear market territory, down more than 20%.
None of that stock price action has impacted the actual cash flow of the company, but it does make that cash flow way more valuable.
Buyers of Enel today will be paid a dividend yield of 8.8%.
And the risk of Enel shares dropping any lower is quite small. The fundamentals of the company are great.
Analysts expect Enel to grow profits by 13% from the current year to the next.
At current prices, shares trade for only nine times current-year estimated earnings.
Given the near 9% dividend, any growth in earnings should be celebrated.
With Enel, we get a huge dividend, plus double-digit profit growth.
And we only have to pay a single-digit multiple for shares today.
Stocks to Buy as Bond Rates Continue Free-Falling, No. 1
Investors tend to be very short-sighted. That’s a mistake. Those that think long term usually reap the reward.
For example, companies that are losing money in the near term tend to be shunned in the market, especially if there is no corresponding revenue growth.
In the case of Spark Energy Inc. (NASDAQ: SPKE), the company saw profits fall about 43% in 2018. As a result, shares are undervalued according to the VQScore.
While the stock has enjoyed a nice run of attention in 2019, shares remain undervalued, as evidenced by the 7.4% dividend yield.
Most important for investors going forward is whether the dividend will remain.
I think it will.
Analysts expect Spark to generate a small profit next year.
Remember, all that matters for investors today is the retention of that dividend.
A move to profitability does that for Spark.
That probably explains why shares are up more than 20% so far in 2019.
Even if gains are modest for the stock, you can rely on that strong dividend to last as bond yields continue to free-fall.
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Source: Money Morning