Electrical Stocks Survive a Tough September to Turn in Decent YTD Share Price Increases

The stock market’s wild ride continued in 3Q 2023, with many of the gains from earlier in the year wiped out by a very forgettable performance in September. The S&P 500 (-4%); Dow Jones (-2.7%); and NASDAQ (-4%) were all down since June.

Before the kids went back to school, the market indices were chugging along with some solid year-to-date gains. But when the school bell rang for many students in early September it seemed to signal not only the start of classes for the fall semester, but also time for a quick drop in stock prices. September has historically often been a treacherous month for stock prices, and this year the ninth month on the calendar followed that pattern. However, despite their September doldrums, through the close of trading on Sept. 29, the S&P 500 was still tracking near its average historical annual gains with an increase +11.3%; the Dow Jones was up +1.1%; and the NASDAQ was up an impressive +25.2%

The market grabbed back a few of those lost points in its early October rally, but a mix of economic and geopolitical challenges threaten to put prices back in the penalty box. The wars in the Middle East and Ukraine, possible rates hikes by the Federal Reserve Bank and the ugly political climate are creating an uneasy mood on Wall Street.

Despite this uncertainty, share prices for a good-sized handful of electrical stocks enjoyed solid gains on a quarterly, year-to-date and year-over-year basis. Distributor and contractor stocks are clearly outpacing the market indices, and year-to-date and stocks of publicly held electrical manufacturers are roughly even with the S&P 500 performance of +11.3% year-to-date (See chart on page 2). Year-to-date, distributor stocks on the whole are up +17.3%, and contractor stocks taken together are up +21.4%.

Electrical manufacturers

Eaton (+10.1%) and Emerson (+9.6%) outstrided all other electrical stocks in 3Q 2023, and Eaton (+34.9%) is also amongst the market leaders on a year-to-date basis. Other top performers YTD through Sept. 29 were nVent Electric (+37.5%); Hubbell (+31.9%); Encore Wire (+31.3%); and Atkore Industries (+29.7%).

Looking at stock performance with a little longer lens, it’s interesting to see that since early 2000, the three stocks with the strongest performance are companies whose prices are to a fairly large degree influenced by the rise and fall and in prices for their key base components. In the case of Encore Wire and Freeport-McMoRan it’s copper, and for Nucor and Atkore Industries it’s steel During this time period, inflationary pressures were clearly a factor, but on a percent basis since Jan. 2020, shares for each of these companies are up a combined total of more than 200%, compared the +31.6% increase in S&P 500 Index over that time period. Because of their recent performance, you often see Encore Wire, Atkore and Nucor in the pick lists of Wall Street analysts.

Distributors

Ferguson is leading this pack of distributors of electrical, electronic, MRO and plumbing/heating supplies with a YTD increase of +27.9%, followed by Grainger at +23.9% and MSC Industrial at +20%. Shares of WESCO (+13.9%) and Rexel (+13%) are also up nicely through the third quarter.

Contractors

As a group, contractor stocks are having the best year in Electrical Marketing’s Electrical Stock Index, with IES Holdings up an impressive +86.6% for the year. With a +41.3% YTD increase EMCOR’s share prices have been surging, and Quanta is continuing its impressive multi-year run with a +30.9% increase. EMCOR and IES were near the top of the chart when sorted by their 3Q 2023 quarterly returns with share increase since the end of June 2023 of +23.5% and +19.6%, respectively. MDU Resources Group is lagging, with a -35.8% YTD decrease.