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NextEra, Xcel, OGE Among Top Utilities for '22 at Bank of America

'Electrification of the economy is still in its early days, with rapid growth of electric vehicles the most tangible example,' Bank of America says.
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Bank of America selected Xcel Energy  (XEL) - Get Xcel Energy Inc. Report, NextEra Energy  (NEE) - Get NextEra Energy, Inc. Report and OGE Energy  (OGE) - Get OGE Energy Corp. Report among its top utility stocks for 2022, as it focuses on the renewable energy theme.

“The electrification of the economy is still in its early days, with the rapid growth of electric vehicles the most tangible example,” Bank of America analysts led by Julien Dumoulin-Smith wrote in a commentary.

“Other trends include utilities pursuing renewable fuels such as hydrogen, natural gas, and diesel. We ultimately see the pure-play theme as unrelenting, but look for companies to increasingly diversify on the margin to gain exposure to electrification/renewable themes.”

The analysts chose Xcel for premium, CenterPoint Energy  (CNP) - Get CenterPoint Energy, Inc. Report for value, NextEra for renewables, UGI  (UGI) - Get UGI Corporation Report for gas, Essential Utilities  (WTRG)  for water, Clearway Energy  (CWEN) - Get Clearway Energy, Inc. Class C Report and Vistra  (VST) - Get Vistra Corp. Report.

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As for NextEra, it has “justifiably decoupled from its utility peers, and we are bullish on the renewable/electrification leader to outperform once again in 2022, … even without [the] Build Back Better Act,” President Joe Biden’s spending plan, the analysts said.

But they aren’t particularly bullish on utilities compared with the rest of the stock market. 

“In general we remain fairly neutral on the utilities sector relative to the broad market, with the defensive sector caught between reopening trades like energy/leisure and work-from-home trades like technology,” the Bank of America analysts said.

“As a result utilities could be facing yet another year of relative underperformance or stagnation, despite the discounted valuation.

“After such a prolonged period of low interest rates pressuring allowed rates of return, do we see a recovery in 2022+? In short, no.”