Hubbell, Rockwell stocks set to benefit from electrification boom

Key Points

• The global shift to electrification can boost lesser-known stocks like Hubbell and Rockwell Automation, as well as utilities. 
• AI and cloud computing are driving increased electricity usage, with giants like Meta, Alphabet, Amazon, and IBM impacting power consumption.
• The U.S. Energy Information Agency forecasts 3% growth in electricity generation between 2023 and 2027.

As the world amps up its shift towards greater electrification, stocks of companies with technologies driving this change are set to spark some gains. 

Sure, there are the well-known “celebrity” stocks like Tesla Inc. NASDAQ: TSLA that fall into this category, but building the innards of electrification is the job of gritty, unheralded S&P components like Hubbell Inc. NYSE: HUBB and Rockwell Automation Inc. NYSE: ROK.

Not familiar with those companies? That’s not surprising. Hubbell joined the S&P 500 at the same time as Lululemon Athletica Inc. NASDAQ: LULU in 2023, but you can guess which company got more media attention. 

In filings, Hubbell says, “We provide utility and electrical solutions that enable our customers to operate critical infrastructure reliably and efficiently.”

Connecting customers with power sources

The company’s products are geared toward helping utilities connect power sources with customers, as well as monitoring power distribution. 

That’s kind of a big deal. Renewable energy is becoming more of a reality and less of a pipe dream. Meanwhile, consumers and businesses are gobbling up more and more electricity. 

Rockwell describes itself as “the world’s largest company dedicated to industrial automation and digital transformation.” Its end-user markets include electric vehicles and batteries, semiconductors, and e-commerce and warehouse automation.

Developers of electrification technologies stand to generate more revenue as the long-overlooked U.S. power grids get some serious updates. Analysts expect Hubbell to post 43% earnings growth when it reports 2023 full-year results on January 30.  

Utilities finally have to upgrade the grid

Demand for electricity hasn’t grown very much in the past 20 years, contrary to what you might think. For that reason, utilities haven’t had to make significant investments in upgrades.

But that’s changing, and you can thank AI and cloud computing. Cloud titans, companies including Meta Platforms Inc. NASDAQ: META, Alphabet Inc. NASDAQ: GOOGL, Amazon.com Inc. NASDAQ: AMZN and International Business Machines NYSE: IBM are driving electricity usage through data processing, storage and their AI servers that gobble up power at faster rates than traditional servers. 

Households are also using more electricity as development shifts away from heating oil and natural gas. As EVs gradually catch on, they, too will become bigger drains on the system, although some new technologies are being tested to send power back to the grid from EVs.  

It’s not just technology stocks that track companies developing renewable energy. 

Walmart as renewable energy specialist?

For example, Walmart Inc. NYSE: WMT has a goal of becoming a totally renewable business and has been investing in wind and solar power to generate electricity for its stores and distribution centers.

The U.S. Energy Information Agency is forecasting that overall U.S. electricity generation will grow by 3% in 2024 and be unchanged in 2025. But on an annualized basis, some analysts see electricity use increasing by about 2% per year in the coming decade. That may not sound like a lot, but it represents a big change. 

This means that not only do power grids need to be bigger, but also more sophisticated. 

Utilities benefiting from upgrades, demand

That’s where utilities stocks, a traditionally defensive sector, could stand to benefit from grid improvements and growth in electricity consumption. For example, American Electric Power Company Inc. NASDAQ: AEP is expected to grow earnings in 2023, which it reports on February 1, as well as this year. 

It’s one of the biggest utility companies in the U.S., serving customers in the fast-growing states of Texas, Tennessee and Oklahoma. The company is also one of the largest utilities by market capitalization, weighing in at $44.24 billion. 

The company has been investing in renewables and the energy grid, saying it would put $40 billion into transmission, distribution and renewable energy projects between 2023 and 2027. 

Reliable and resilient energy grid

“AEP will allocate $26 billion to transmission and distribution operations to continue building a modern, efficient, reliable and resilient energy grid,” the company said in 2021. 

The company, like other utilities nationwide, has been downsizing its use of coal, while increasing its hydro, wind and solar technologies. All of that is a reflection of the ways America’s growing use of electricity will be generated from sources that haven’t been common in the past.