Why BofA are buyers of weakness in this sector

Investing.com -- Bank of America analyst Ross Fowler told investors in a note Monday that 2026 is shaping up to be a year of selective stock picking for U.S. power and utilities, arguing that recent pullbacks are creating attractive entry points in parts of the sector.

In its 2026 outlook, BofA said it expects a shift away from broad-based gains toward names that can balance growth and affordability in a more challenging political and regulatory backdrop.

Foweler noted that while utility valuations appear “23% rich versus historical bond relationships,” that premium “normalizes to just 4% overvalued” when accounting for higher growth rates and BofA’s expectation for “75bps of rate cuts in 2026.”

The analyst added that Fed easing “typically supports utility relative outperformance,” even if a yield curve inversion could temper that tailwind.

Against that backdrop, BofA said it “remain[s] buyers of weakness in power stocks,” highlighting Constellation Energy, Talen Energy and Vistra as its preferred names.

The firm noted that its preference is ordered by relative risk, with CEG, TLN and VST offering attractive upside driven by contracting and pricing.

BofA believes a “full contracting of the rest of the fleet” at incremental margins of $15/MWh for natural gas and $20/MWh for nuclear supports higher valuations across the group.

BofA’s constructive stance is also driven by demand trends, pointing to “strong regional growth led by Texas and the Southwest,” alongside data centre clustering in hubs such as California, northern Virginia and Texas.

The bank added that “AI-driven demand underpin[s] long-term load growth,” while potential regulatory clarity could accelerate contracting.

Still, BofA cautioned that risks are rising, particularly around affordability and counterparty exposure, reinforcing its view that 2026 will reward disciplined, selective positioning rather than blanket exposure to the sector.

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