2 Safe Utility Stocks Just Waiting for a Bull Run

A meter measures energy use.

The utility scene may very well be an indirect way to play increased energy use as emerging, power-hungry technologies rise. Indeed, the latest GPUs (graphics processing units) are needed to run (or accelerate) the most capable large language models (LLMs). As generative artificial intelligence (AI) continues to take off, GPUs over at data centres could really put a drain on the grid.

Indeed, such a tailwind could help the utility stocks kick off a bull run of sorts. As always, though, some utility plays stand to gain more than others. In any case, I ultimately believe that technological shifts that bring forth greater energy consumption are a potential boon for the utilities.

The utility scene isn’t known for growth or secular trends. Instead, it’s best known for stability, dividends, and predictability. As safety and growth collide, I’m increasingly liking the value proposition offered by various utility stocks. In this piece, we’ll check out two “safe” utility stocks that could fare quite well if a bull run is underway at the hands of impressive power-hungry tech.

Without further ado, here are three great utility plays I’d not be afraid to watch closely in July and beyond.

Hydro One

Hydro One (TSX:H) is a fantastic utility stock that’s delivered some respectable, steady gains in recent years. Today, the stock’s close to a new all-time high but remains quite cheap at 21.5 times trailing price-to-earnings (P/E), given tailwinds that could lie ahead. Additionally, the multiple isn’t all too high when you consider Hydro One’s monopolistic position in Ontario. The highly regulated nature of the business could curb the firm’s most ambitious growth prospects.

That said, I’d argue the firm doesn’t need to put its foot on the gas on growth. It’s already done so well in improving its infrastructure to drive efficiencies. The stock is up 73% in the past five years. With a 3.2% dividend yield, H stock is one of those utility top dogs to buy and forget.

Vistra

If you seek more upside, a Texas-focused power generator in Vistra (NYSE:VST) may be more your cup of tea. The firm doesn’t just have a huge power generation capacity, but it also plays a huge role in the sustainable energy transition with its numerous renewable assets (think solar). The company’s long-term sustainability goals are impressive on their own. But it’s the potential to feed a growing appetite for AI-induced energy demand that is the top reason to pay a premium for the stock.

At writing, shares of VST are up 250%, which is profoundly impressive as the firm looks to double down on various energy projects in the fast-growing state of Texas. After plunging close to 16% from recent highs, perhaps new investors have an opportunity to do a bit of dip-buying. At 54.8 times trailing P/E, though, the stock still looks quite frothy. Perhaps waiting for a bigger pullback or averaging into a position could help investors deal with the choppiness in the name.

Bottom line

Between Hydro One and Vistra, I’d have to go with the former, as it’s far cheaper, even if it’s not a renewable energy powerhouse like Vistra. Transmission and distribution stand out as a stable option for utility investors.

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Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.