Historically, all companies go through a period of rapid growth while they build market share. Once they hit saturation, they tend to see a decline. To avoid that, most companies have to innovate and come up with a new product or service to keep customers.
For other assets, such as commodities, demand can fluctuate in cycles. Investors who buy near the low of the cycle and sell near the top can often make market-beating returns.
Today, utility companies are behaving like commodity stocks at the start of a bull market. That’s because rising demand for AI means a demand for more energy. That means building out new power facilities to meet those needs.
Power-plant operators have fared well over the past few months. But with demand expected to go from a growth rate of 0.4% to 2.8%, bigger gains are ahead.
Action to take: Investors can buy a number of utilities in areas where new data centers are being built out. One play that looks attractive is NextEra Energy (NEE), given the rising population in the company’s service area of Florida.
Shares pay a 2.7% dividend, and NextEra has a history of increasing that payout over time.
For traders, the September $80 calls, last trading for about $3.30, could see mid-double-digit returns from a further move higher in shares over the coming months.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.