Hightower's Stephanie Link explains why the rally in utilities is just the beginning

Hightower Advisors Chief Investment Strategy and CNBC CNBC contributor Stephanie Link. Stephanie, it’s great to have you on the show. Welcome. Thank you. Great to see you. I want to start, I want to start with what Santoli just broke down for us. The fact that utilities have been igniting higher and AI has been seen as a catalyst for this, but that there’s some context to be had too, because it perhaps also just playing out as a value trade to a certain extent after being beaten down so, so much. How do you see the sector? What do you like in the sector if you do? Yeah, well, I think utilities and electrification, electrical stocks are tied to the same theme. It’s energy transition super cycle and I think you anything tied to green clean grid, power data center of course AI, but anything tied to these end markets we are going to spend between now and twenty $54 trillion on all of this stuff, technology as well as infrastructure. And so maybe you don’t want to own the utilities as a pureplay, but their Cap X Morgan is actually going to go higher over the coming years as a result of all of this and it will benefit some of these electrification stocks. And oh by the way, I think the other reason utilities have done well because actually earnings have come in much better than expected, up 30% year over year. And so I think that was that got the attention of a of a few investors as well. Yeah, I mean, traditionally, I’ve always thought of utilities as defensive, as safe haven stocks as yield plays. But to hear you break it down like that, it reminds me of what the CEO of GE Vernova said to me a couple weeks back before the spin off. And that being the fact that for call it the last 20 years you saw limited growth only something like half a percent in terms of power generation from these companies and from the industry. And now all of a sudden it’s turbocharged and that is set to jump much higher because because of AI, because of data centers and because of the electrification of everything. Right now it’s really remarkable that if you listen to not only GE Vernova, but you listen to Quanta Services and you listen to Eaton Corp, all three companies on their conference calls were very, very surprised at the underlying demand. He, the Quantum Services CEO said it was mind boggling the amount of power loads that are going to be needed for data center. I mean those words don’t come. I mean I take those very, very seriously. And when it comes from so many different and companies, I think you have to pay attention. In fact, the Dodge Momentum Index, which I know you know this index very well, it was up 6% month over month. And the person representing Dodge Momentum said they’re seeing a deluge, a deluge of data center projects. So you definitely want to have exposure, especially on the electrification side. OK. I’m going to shift gears a little bit because next week we obviously we get inflation data, we get retail sales, but we also start to get the beginning of retail earnings. Given what we’ve heard so far through earnings season about the consumer, what seems to be a much more cautious picture in terms of particular for lower end and even middle class consumers and how they’re spending and those behaviors continuing to shift and belts continuing to tighten amid higher inflation. How are you thinking about these names? How much are they going to mean to the broader markets with that narrative already in place? Yeah, I mean, I think it’s going to be extremely important and we get a whole host of companies next week in the week thereafter. I think you want to be very stock specific, very company specific within the consumer. I am a big bull on the consumer because we have the job market that’s so tight. We have stronger wages running for 4 1/2 percent. We have higher home prices and we have a little bit lower inflation. I think all of that bodes well for the consumer. But I think you want to be selective. I like housing very much. We have Home Depot that reports next week I think after five quarters in a row of negative comps. I think you’re at the inflection point this coming quarter. I don’t think it’s going to be anything terrific, but I think you have very easy comparisons starting now into the end of the year and you have a seasonally strong trade and gross profits margins have been very strong along the the, the, the spectrum of the company in the economy over the last couple of years. I happen to own Target, I think mainly because it’s trading at 16 times, Walmart’s trading 25 times. I don’t think that it should be that wide a gap. And I think the target has done a lot of great things in terms of getting their inventories down, reducing markdowns, being better profitable, being more profitable. And I think you can get margins back to that 6% level which they saw back in 2019. And that operating leverage will be very nice once the top line comes back. OK. Anything else you’re watching either stock specific or in terms of the broader market right now? Well, I think I think we’re all waiting for the inflation number next week. To your point, I do think that we’re not going to get to 2% inflation, which is the feds goal and I’m not even sure why the feds goal is 2%. You can have a goal of inflation at 2% when you’re growing the economy at one 1 1/2 percent. We’re growing this economy at 22 and a half 3%. The Atlanta Fed Tracker yesterday came out with a 4.2% GDP number for the current quarter. I don’t think we’re going to grow 4%, but my point being is you’re not going to get inflation down if growth is elevated. By the way, that’s a good thing. I’ll take higher growth and a little bit higher inflation any day because that’s really good for corporate earnings, which have come in much better than expected.