Utilities: At the Center of the Natural Disaster Storm.

Palisades Fire as seen from Venice Beach on Jan. 7, 2025. Photo by: Arkadiynight. Wiki Commons. Used with permission.

Utilities: At the Center of the Natural Disaster Storm.
Is This Industry a Good Hedge Against Market Volatility? What about water, consumer staples or even cybersecurity?

PG&E declared bankruptcy in 2019 after the Camp Fire. Southern California Edison is facing at least 40 lawsuits tied to the 2025 Eaton Fire. In the past, utilities were buoyant in bear markets. In hard times, people still need water and electricity and continue paying their bills. However, in today’s world of unprecedented natural disasters and the plethora of lawsuits that land on utility companies, are there better hedges against stocks going south? Could water, consumer staples or cybersecurity companies provide better protection?
 
Below are the things we’ll cover in this blog.
 
Southern California Edison Sued. PG&E Bankruptcy.
Low Credit Quality, High Debt with Slow Growth
Pandemic Lows, The Great Recession, Valuations and Share Price Volatility 
Water Utilities 
Consumer Staples
Cybersecurity
 
And here is more information on each point.
 
Southern California Edison Sued. PG&E Bankruptcy.
On March 5, 2025, Los Angeles County filed a lawsuit against Southern California Edison alleging that the company’s equipment started the Eaton Fire that decimated Altadena in January of 2025. More than 40 lawsuits have been filed against the company. Edison International’s share price plunged from a high of $88.77 on Nov. 27, 2024, to a low of $49.06 (Feb. 10, 2025). The current price of $56.97 is still down -35.8%. The total damage of the Eaton Fire has been estimated at $25 billion. The market value of Edison International is $21.93 billion.

In early 2019, PG&E filed for bankruptcy due to an alleged $30 billion in financial liabilities stemming from Southern California wildfires in 2017 and 2018, including the 2018 Camp Fire that killed 85 people and destroyed the town of Paradise, California. The share price is still down -75%. (This was one of the few corporate restructurings where the share price wasn’t wiped out completely.)
The litigious frailty of utility companies in today’s world of expensive, devastating wildfires and storms makes these equities some of the riskiest in today’s world. Dividends aren’t worth such devastating loss of principal. The lawsuits and liability of utility companies are compounded by high debt, regulated rate increases and low credit quality.
 
Low Credit Quality, High Debt with Slow Growth
Utility companies tend to be racked with debt. Many utilities are ranked at the lowest rung of investment grade, with some already in speculative territory. PG&E is rated BB Positive (speculative). Edison International is BBB with a negative outlook. A credit downgrade almost always drags the share price down with it.
 
Regulations prevent willy-nilly rate increases on utility bills. So, revenue growth rates are restrained. It’s rare to see anything more than single-digit sales growth in a utility company.
 
Pandemic Lows, The Great Recession, Valuations and Share Price Volatility 
Dividend-loving investors are often sold into utilities – pushing the share price above reasonable valuations – something Edison International enjoyed before the January 2025 wildfires in Southern California. All the other companies on my Utility Stock Report Card are boasting very high valuations (for such a slow-growth industry) – with P/Es in the 24-27 range. Email [email protected] if you’d like to receive a Utility Stock Report Card.
 
Expensive share prices invite volatility. During the Great Recession, National Grid sank from $92.17/share on Nov. 30, 2007, to $40.18/share by Jan. 30, 2010. In 2022, when the S&P500 dropped -19.44%, the iShares Global Utility ETF (JXI) dropped in tandem between January and November.
 
While funds can smooth out the volatility of any one utility company’s troubles, the last-century idea that utilities’ investors remain cool-headed when volatility heats up isn’t true in a world that seems to be on fire.
 
Water Utilities 
Water is essential to life. It is in high daily demand, with a limited supply of fresh, potable H2O. Limited supply and massive demand often make the case for a great investment – until you look deeper into the well. Water, like electricity, is highly regulated and controlled. Farmers in Duncan, Arizona (including a family friend) had their wells sealed. Nevada has a “grass ban” for non-functional lawns. There are laws in drought-ridden states that govern rainwater harvesting.
 
Like electric utilities, many water companies are highly regulated, tend to have a lot of debt and a low credit score, and currently have an expensive share price (as measured by price-earnings ratio). Email [email protected] if you’d like to receive a Water Stock Report Card.
 
So, what about other industries, like consumer staples and perhaps cybersecurity as hedges against a decline in stock prices?
 
Consumer Staples
By the book, consumer staples should be a way to ride steady on the waves of Wall Street. We continue to eat, wash our hair and go to the bathroom during economic downturns. However, the retail apocalypse has changed the game for brick-and-mortar and tariffs could erase the already thin profit margins (often 3%) of many consumer outlets. One look at the five-year high and low of Walmart, Target, Amazon and Temu (PDD Holdings) tells us all we need to know about the volatility of investing in this industry, with share swings that can double or even quadruple. Valuations are high in many of the companies. Amazon earned $59 billion in net income last year but has a market capitalization of $2.24 trillion. In 2022, Amazon’s share price fell by half. (The S&P500 dropped -19.44%.)
                                                     
Cybersecurity
Cybersecurity is a basic need for all governments and online businesses. It’s an expense that can’t be eliminated no matter how much belt tightening a company or country must do. The revenue growth rates are impressive – with almost all the companies enjoying a double-digit year over year increase in sales. Many cybersecurity companies are GAAP cash negative, as this nascent industry invests to keep ahead of the hackers.
 
The great news about the industry is already priced in. Even Crowdstrike, the company at the center of the Blue Screen crash that grounded Delta Airlines last July 2024, is trading close to an all-time high.
 
While this industry is a part of my personal portfolio, if I were adding it to my age-appropriate, diversified plan, I’d dollar-cost average in. If you added this industry years ago when we first featured it, it’s probably a good time to consider profit-taking. After the Spring Rally (now) is an ideal time to do our regular rebalancing. (Click to take our Rebalancing IQ Test.)
 
Email [email protected] if you’d like to receive a Consumer Staples or Cybersecurity Stock Report Card.
 
Bottom Line
The best hedge against a downturn on Wall Street is to overweight safe in our age-appropriate, properly diversified plan – to act a little older than we are. In our sample pie charts, we’re overweighting 20% safe. (Email [email protected] to receive a link to our free web app, where you can personalize your own pie chart.) Capital preservation (assuming you know how to do this without the paper losses) assures that we limit any losses, while also keeping us invested. Rebalancing 1-3 times a year smooths out the volatility of the Wall Street rollercoaster, allowing us to capture and keep our gains. There are a few more adjustments we are making in our sample pie charts to manage for an overpriced marketplace, as we enter a period that might suffer from stagflation or even a recession.
 
If the above paragraph sounds like an alien language, it’s time to learn the ABCs of Money that we all should have received in high school. Having blind faith that someone else is protecting our future and wealth doesn’t work well in downturns. Managed plans tend to do whatever the market does, and many conservative investors are suffering from paper losses. (Our educational guidance on safety has protected fixed income investors from paper losses.) Again, our time-proven, 21st Century strategy makes investing as easy as a pie chart. Join us at the June 6-8, 2025 Online Financial Freedom Retreat.  
 

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Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The ABCs of Money (6th edition) and The Power of 8 Billion: It's Up to Us, and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 6th edition of The ABCs of Money and the 2nd edition of Put Your Money Where Your Heart Is (2nd edition) are the most recent releases of these books. Follow her on Instagram. 
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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly-traded companies, funds or projects mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect an age-appropriate, diversified wealth plan, which has been designed strategically, with the assistance of financial professionals who are familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge, patience and diversified strategy.  
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Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument.