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 | | | Utilities Scramble in Wake of COVID-19... But Is Now the Time to Buy? | | David Fessler | Energy and Infrastructure Strategist | The Oxford Club | | | | | COVID-19 is turning out to be a ubiquitous and insidious enemy. It's sparing no corner of the global economy.
The energy sector has been hit hard. It's experiencing unprecedented disruptions.
During previous crises, investors sought safety in utility stocks. But that isn't working amid the coronavirus.
Utilities were hammered just like everything else. Concerns about grid reliability during the outbreak pummeled shares of utility stocks. The Utilities Select Sector SPDR ETF (NYSE: XLU) was down more than 30% from its recent high. Today, it's still down 13%.
In the midst of COVID-19, utilities are scrambling. They have to change the way they operate.
Companies that operate nuclear power plants are concerned about refueling. And rightly so.
Very few employees are trained in refueling nuclear reactors. And yet it's critical to our nation's security that these facilities remain operational.
Renewables Taking a Hit
New renewable projects are being delayed as well because of the ongoing crisis. It has thrown a monkey wrench in the global supply chain.
Construction delays are popping up amid economic uncertainty. Workers are being furloughed.
The wind industry could be hit particularly hard. At the end of 2019, the wind energy project pipeline hit a record high.
More than 22,000 megawatts (MW) were in development. These projects had not yet started construction.
Solar was also on fire. More than 20,000 MW of large-scale solar projects were slated for 2020 installation, a 47% jump year over year.
Overall, there are more than 48,000 MW of solar projects in the pipeline.
Many if not all of these projects are at risk. And that's not good news for the 500,000 employees who work in that industry. | | | What's Ahead?
That depends on how long COVID-19 stays with us. The longer it's here, the longer lockdowns will last.
And that could spell trouble for energy companies. Many are delaying past-due bill collection.
However, here's the silver lining...
S&P Global Ratings believes the sector is better positioned to weather the coronavirus effects than others.
Few ratings downgrades are expected in the utility sector. Most utilities have operational disaster plans. And while COVID-19 is not your typical disaster, it is certainly disruptive.
If and when the going gets tougher, some utilities may have to cut dividends. That will affect some investors who rely on them as a source of income.
But this may be your best chance to go bargain hunting. If you don't own any utility stocks, now is a perfect time to pick some up on the cheap.
If you can't decide on which ones to buy, the Utilities Select Sector SPDR ETF is the ticket.
The coronavirus impacts are ongoing. But the investment opportunities have never been better.
You just have to hold your nose and buy.
Stay safe and healthy,
Dave | | | | |  | | | | | |  |  | | | | Matthew Carr | March 31, 2020 As pot stocks tank, cannabis companies are at risk of having their shares delisted from major exchanges. Read More | | | | |  | | | | Matthew Carr | March 30, 2020 A market crash is usually the time to go shopping for discounts, but be wary of these five stocks right now. Read More | | | | |  | | | | Jody Chudley | March 26, 2020 Here's why you shouldn't worry about your investment portfolio during this market crash. Read More | | | | | | | | |
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