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Medicare-for-All, Mueller Report Spell Danger: 5 Utility Picks

Swarup Gupta
PPL Corp's (PP)) first-quarter 2019 results to benefit from consistent investments.

U.S. markets closed in the red on Apr 17 after healthcare stocks slumped on fears of key policy changes that could hurt the sector. The primary trigger for such concerns is a new proposal being backed by Democratic presidential hopefuls that seeks to guarantee healthcare to all U.S. citizens as a right.

Unveiled last week, the Medicare-for-All proposal has sent stocks on a downward spiral this week. And a second political issue now threatens to upend this year’s searing market rally. The keenly awaited Mueller report will finally be released on the morning of Apr 18, albeit in redacted form.

The release of the report could boost political tensions, leading to further losses for stocks. In such a situation, utility stocks could emerge as a prudent choice. Their superior dividend yields and steady revenues make them good choices in tough times.

Medicare-for-All Rattles Healthcare Stocks

U.S. stocks closed lower on Wednesday, primarily due to losses made by healthcare stocks. The Health Care Select Sector SPDR Fund (XLV) closed 2.9% lower after UnitedHealth UNH CEO David Wichmann issued a dire warning about the Medicare-for-All proposal issued by Democrats in running for the U.S. presidency.

According to Wichmann, the Medicare-for-All proposal would “jeopardize the relationship people have with their doctors, destabilize the nation’s health system and limit the ability of clinicians to practice medicine at their best.”

Shares of UnitedHealth finished 4% lower on Tuesday and 1.9% on Wednesday. Shares of Anthem, Inc. ANTM, Cigna Corporation CI and HCA Healthcare, Inc. HCA lost 3.6%, 3.7% and 2.1% respectively on Apr 17.

Per Bloomberg, insurers and hospitals lost a total of $28 billion in market value on Tuesday. On Wednesday, losses for healthcare stocks effectively led to indexes closing with losses. As of date, healthcare is the worst performing sector this year.

Mueller Report to Raise Turbulence

Another potential roadblock for U.S. markets is the release of the much-awaited Mueller report on Apr 18. The report, which discusses allegations of collusion between the Trump campaign and Russia, is expected to run into 400 pages.

Market watchers and political commentators will scrutinize the portions attorney general William Barr has chosen to redact from special counsel Robert Mueller’s report. Barr is slated to release the report to Congress only after holding a news conference at 9:30 AM ET on Thursday.

Democrats have criticized the mode of the release and colleagues are unlikely to be satisfied with anything less than a full and unredacted version of the report. This is perhaps why analysts at Capital Alpha Partners think “stormy weather may resume” for equities if the report is more damaging than Barr “initially characterized in his four-page memo to Congress.”

Analysts at BTIG think the Mueller report is among the “numerous correction catalysts” which could hurt equity markets. According to them, the release of the report is likely to “further ratchet up the political acrimony,” simultaneously raising market volatility.

Our Choices

Political tensions are threatening to hurt this year’s strong market rally at this point. Democrat presidential hopefulls’ clarion call for “Medicare-for-All” has ratcheted up fear in the healthcare industry. Now, the release of the Mueller report threatens to stir up a perfect storm for bourses which could even lead to a near-term correction.

The above-average dividend yields and steady revenues make this class of stocks a great option at a time when volatility is set to rise. Adding them to your portfolio would make for a prudent choice. We have narrowed our search to the following stocks based on a good Zacks Rank and other relevant metrics.

Otter Tail Corporation OTTR is involved in the production, transmission, distribution and sale of electric energy.

Otter Tail’s expected earnings growth for the current year is 6.8%. The Zacks Consensus Estimate for the current year has improved by 4.6% over the last 60 days. The stock has a dividend yield of 2.8% and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here .

Pinnacle West Capital Corporation PNW provides electricity services (wholesale or retail) in the state of Arizona through its subsidiaries.

Pinnacle West has a Zacks Rank #2 (Buy). The company has expected earnings growth of 6.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 60 days. The stock has a dividend yield of 3.1%.

The AES Corporation AES is a global power company. AES Corp operates in two lines of business – Generation and Utilities.

AES Corp has a Zacks Rank #2. The company has expected earnings growth of 7.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.8% over the last 60 days. The stock has a dividend yield of 3.1%.

ONE Gas, Inc. OGS is a 100% regulated natural gas distribution utility.

ONE Gas has a Zacks Rank #2. The company has expected earnings growth of 5.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.3% over the last 60 days. The stock has a dividend yield of 2.3%.

PNM Resources, Inc. PNM is an electric utility that provides electric generation, transmission and distribution service to its rate-regulated customers.

PNM Resources has a Zacks Rank #2. The company has expected earnings growth of 7.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.9% over the last 60 days. The stock has a dividend yield of 2.6%.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

See Latest Stocks Today >>


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Pinnacle West Capital Corporation (PNW) : Free Stock Analysis Report

PNM Resources, Inc. (Holding Co.) (PNM) : Free Stock Analysis Report

The AES Corporation (AES) : Free Stock Analysis Report

Otter Tail Corporation (OTTR) : Free Stock Analysis Report

ONE Gas, Inc. (OGS) : Free Stock Analysis Report

Cigna Corporation (CI) : Free Stock Analysis Report

Anthem, Inc. (ANTM) : Free Stock Analysis Report

UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report

HCA Healthcare, Inc. (HCA) : Free Stock Analysis Report

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