We recently published a list of 7 Cheapest Stocks to Buy According to Hedge Funds. In this article, we’ll look at where PG&E Corporation (NYSE:PCG) stands against other cheap utility stocks according to hedge funds.
The global utilities industry includes three primary sectors: electricity, natural gas and water. It plays an important role in the safe, secure, and sustainable generation, supply and distribution of these important resources.
A major energy provider in many countries, electricity stands as an attractive segment of the general utility industry. The EIA’s Short-Term Energy Outlook report estimates a 3% increase in US electricity production this year compared to 2023, driven by increased solar power, with natural gas also playing a key role. However, utilities are struggling to gain customer support for their sustainability goals, which are essential for justifying rate cases, funding infrastructure projects, and encouraging changes in consumer behavior. This, combined with aging infrastructure, has led to increased operating costs for transmission and distribution, particularly for major investor-owned utilities over the past decade. With summer cooling costs expected to increase by 8% this year, residential and commercial customers are increasingly concerned about energy prices. Meanwhile, although 80% of US utility customers are served by service providers with a 100% carbon reduction goal, the JD Power 2024 Sustainability Index shows that only 21% of them are aware of their utility’s efforts to reduce carbon emissions. carbon.
However, there have also been significant developments in the opposite direction, especially with the utility sector collaborating with the technology industry, greatly stimulated by the development of artificial intelligence (AI). Major players like Microsoft Corporation are making big strides in this space, especially due to nuclear power’s ability to support the energy needs of AI applications while meeting low carbon goals. In that regard, Goldman Sachs projects that by 2030, AI data centers will double their electricity consumption, reaching 8% of the US total. Along with the increasing adoption of electric vehicles, the demand for power is set to grow even more. Speaking on the relationship between the service sector and AI, Tom Essaye from Sevens Report Research noted:
“The AI ​​growth story only adds to what is already bullish for services that include 1) Declining bond yields (makes high-dividend equities like services attractive to income investors) and 2) A slowing economy (which adds the needs of the economically disadvantaged.” shares).”
In early August, utility stocks gave investors rare hope amid a sharp selloff in the U.S. market, as market turmoil led to a shift away from technology stocks that had fueled gains for more than a year. Historically, services have been the best-performing sector in the six months surrounding the first contraction of the economic cycle, according to Goldman Sachs analysis.
In support of this trend, the Federal Reserve’s recent decision to cut interest rates by 0.5%, or 50 basis points, is expected to benefit developers and financiers of renewable energy projects. “The start of the rate cut cycle will trigger projects,” said Mona Dajani, partner and global co-chair of energy, infrastructure, and hydrogen at Baker Botts. Dajani pointed out that the initial rate cut was deeper than expected, stressing that a rate cut cycle does not usually start with a 50 basis point cut:
“I think that’s a good indicator, like putting your money where your mouth is. The market expected 25, but it felt good. It’s big. And I think overall, clean energy is one of the big winners.
Dajani added that the market expects the Fed to cut rates by a total of 100 basis points by the end of the year, which will “facilitate the expansion of the domestic clean energy supply chain, and make it easier to finance and build new solar factories, batteries, EVs, and the wind.”
Our Method
To compile our list of undervalued corporate stocks favored by hedge funds, we used stock trackers to identify companies with a price-to-earnings (P/E) ratio of less than 20 as of September 26, which are also well-regarded by analysts. The selection is based on the popularity of these stocks among the 912 hedge funds tracked by Insider Monkey and is ranked in ascending order based on the number of hedge funds holding each stock.
At Insider Monkey, we struggle a lot with the stocks that hedge funds are piling up. The reason is simple: our research has shown that we can beat the market by mimicking the top picks of the best hedge funds. Our quarterly newsletter strategy selects 14 undervalued and overvalued stocks each quarter and has returned 275% since May 2014, surpassing its benchmark of 150% (see more details here).
Glowing night view of power grid with transmission lines and substations.
PG&E Corporation (NYSE:PCG)
Forward P/E as of September 27: 13.32
Revenue Growth this year: 10.60%
Number of Hedge Fund Owners: 46
PG&E Corporation (NYSE:PCG), operating through its subsidiary Pacific Gas & Electric Company, provides service to more than 16 million residents in Northern and Central California. The company maintains a strong presence in the state, particularly in Silicon Valley, where its state-of-the-art fiber network and renewable energy grid are critical to supporting regional data centers.
BofA Securities recently initiated coverage on PG&E Corporation (NYSE:PCG), giving the utility a Buy rating and setting a $24 price target. The company expects an expected total return of around 17.3%, crediting PG&E’s management for effectively handling post-emergence challenges. BofA believes the company is on track to operate as a traditional US regulated entity by 2026.
PG&E Corporation (NYSE:PCG) has also been awarded a $34.5 million grant from the US Department of Energy’s Office of Grid Distribution. These funds, part of DOE’s Hydropower Incentive Retention and Enhancement Program, will support 19 hydropower projects aimed at enhancing grid stability, improving dam safety, and reducing environmental impacts.
As of the second quarter of 2024, 46 hedge funds held a combined stake in PG&E Corporation (NYSE:PCG) worth $2 billion, with Third Point one of the largest shareholders, owning $938.47 million in shares as of June 30.
In general, PCG 1st place on our list of Cheapest Stocks to Buy Services Based on Hedge Funds. While we acknowledge the potential of PCG as an investment, our belief lies in the belief that some AI stocks hold great promise to bring high returns and do so within a short period of time. If you’re looking for an AI stock that’s more promising than PCG but that trades at less than 5 times its earnings, check out our report on Low stock price AI.
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Disclosure: None. This article was originally published in Insider Monkey.
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