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4 Defensive Stocks to Prepare Your Portfolio for a Recession
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The broader equity market has been highly volatile so far this year on increasing pessimism around the possibility of a recession amid rising interest rates, soaring inflation and supply-chain issues. The ongoing Russia-Ukraine war has further increased worries for investors about a global economic recovery.
Year to date, the Dow Jones Industrial Average, Nasdaq Composite and S&P 500 have plunged 7.6%, 29.6% and 17.3%, respectively. The global economy has been going through a massive slowdown due to the macroeconomic and geopolitical environment.
Given the current highly volatile market environment and the growing fears of an incoming recession, investors are panicking about investing in the market. Does it mean that there are no sectors to invest in amid this market volatility?
We believe that investing in defensive sectors like Consumer Staples, Utilities and Health Care amid the ongoing macroeconomic headwinds and the highly volatile market scenario might provide stability to one’s portfolio and fetch some returns as well.
These sectors comprise companies providing necessary products and services of daily use. Defensive sector stocks like Archer-Daniels-Midland Company (ADM - Free Report) , The Hershey Company (HSY - Free Report) , UnitedHealth Group Incorporated (UNH - Free Report) and Merck & Co., Inc. (MRK - Free Report) are less likely to get affected by the economic turbulence and will thus remain a suitable choice for stable earnings.
How to Pick the Right Defensive Stock?
It is difficult to pick such multi-faceted stocks from a plethora of investment opportunities.
Here the Zacks Stock Screener comes in handy. With the help of the screener, we have identified the aforementioned four stocks that have a favorable combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Per Zacks’ proprietary methodology, stocks with such a favorable combination offer solid investment opportunities. The Zacks Growth Style Score condenses all the essential metrics from a company’s financial statements to get a true sense of the quality and sustainability of its growth.
We have further narrowed our search to four defensive stocks that have seen solid earnings estimate revisions in the past 60 days. Moreover, these companies are regular dividend payers.
Our Top Picks
Archer Daniels is the successor to the Daniels Linseed Co. Founded in 1902, this Illinois-based company is one of the leading producers of food and beverage ingredients as well as goods made from various agricultural products.
Archer Daniels has been gaining from solid demand, improved productivity and product innovations. Persistent growth in the Nutrition segment of ADM, aided by significant gains in the Human and Animal Nutrition units, remains the key growth driver. The company expects the nutrition segment to record operating profit growth of 15%-20% in 2022.
At present, ADM has a Zacks Rank of 1 and a Growth Score of A. The company has an expected earnings growth rate of 44.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 9.5% over the past 60 days. The stock has a dividend yield of 1.76% and a five-year historical dividend growth rate of 4%. Further, ADM's payout ratio is 22% of earnings at present. Check Archer Daniels’s dividend history here.
Archer Daniels Midland Company Price and Consensus
Hershey is the largest chocolate manufacturer in North America as well as a global leader in chocolate and non-chocolate confectionery. In addition, Hershey manufactures pantry items like baking ingredients, toppings and beverages; and gum and mint refreshment products; snack bites and mixes, as well as spreads.
HSY is steadily gaining momentum in the confectionary space with consistent acquisitions. Its buyouts continue to augment portfolio strength and boost revenues. This was seen in the third quarter of 2022, when buyouts of Pretzels and Dot’s boosted net sales by 4.1 points.
Hershey carries a Zacks Rank of 2 and has a Growth Score of B. The company has an expected earnings growth rate of 15.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 6 cents over the past 60 days. The stock has a dividend yield of 1.78% and five-year historical dividend growth of 8.2%. Further, HSY's payout ratio is 51% of earnings at present. Check Hershey’s dividend history here.
UnitedHealth provides a wide range of healthcare products and services, such as health maintenance organizations, point-of-service plans, preferred provider organizations, and managed fee-for-service programs. At present, UNH has a Zacks Rank of 2 and a Growth Score of A.
UnitedHealth’s top line has been growing and the momentum should continue in the years ahead on the back of a strong market position, new deals, renewed agreements and expansion of service offerings. Revenues for 2022 are predicted at around $324 billion. The company's solid health services segment provides diversification benefits while its Government business remains well-poised for growth. A sturdy balance sheet provides ample financial flexibility for investments in new growth opportunities.
UnitedHealth has an expected earnings growth rate of 15.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 16 cents over the last 60 days. The stock has a dividend yield of 1.23% and a five-year historical dividend growth rate of 17.5%. Further, UNH's payout ratio is 31% of earnings at present. Check UnitedHealth’s dividend history here.
UnitedHealth Group Incorporated Price and Consensus
Merck boasts more than six blockbuster drugs in its portfolio, including the PD-L1 inhibitor, Keytruda, which is approved for several types of cancer and alone accounts for around 40% of its pharmaceutical sales. Keytruda, Gardasil vaccine and Bridion have been driving sales.
Keytruda has played an instrumental role in driving Merck’s revenue growth in the past few years. Keytruda is growing continuously and expanding into new indications and markets globally. With continued label expansion into new indications & early-stage settings, Keytruda is expected to remain a key top-line driver.
Animal health and vaccine products are core growth drivers. Merck’s new COVID oral antiviral pill, Lagevrio has been a key top-line driver in 2022. Merck boasts a strong cancer pipeline, including Keytruda, which should help drive long-term growth.
Merck carries a Zacks Rank of 2 and has a Growth Score of B. The company has an expected earnings growth rate of 22.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by a penny over the past 60 days. The stock has a dividend yield of 2.51% and a five-year historical dividend growth rate of approximately 9%. Further, MRK's payout ratio is 36% of earnings at present. Check Merck’s dividend history here.
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4 Defensive Stocks to Prepare Your Portfolio for a Recession
The broader equity market has been highly volatile so far this year on increasing pessimism around the possibility of a recession amid rising interest rates, soaring inflation and supply-chain issues. The ongoing Russia-Ukraine war has further increased worries for investors about a global economic recovery.
Year to date, the Dow Jones Industrial Average, Nasdaq Composite and S&P 500 have plunged 7.6%, 29.6% and 17.3%, respectively. The global economy has been going through a massive slowdown due to the macroeconomic and geopolitical environment.
Given the current highly volatile market environment and the growing fears of an incoming recession, investors are panicking about investing in the market. Does it mean that there are no sectors to invest in amid this market volatility?
We believe that investing in defensive sectors like Consumer Staples, Utilities and Health Care amid the ongoing macroeconomic headwinds and the highly volatile market scenario might provide stability to one’s portfolio and fetch some returns as well.
These sectors comprise companies providing necessary products and services of daily use. Defensive sector stocks like Archer-Daniels-Midland Company (ADM - Free Report) , The Hershey Company (HSY - Free Report) , UnitedHealth Group Incorporated (UNH - Free Report) and Merck & Co., Inc. (MRK - Free Report) are less likely to get affected by the economic turbulence and will thus remain a suitable choice for stable earnings.
How to Pick the Right Defensive Stock?
It is difficult to pick such multi-faceted stocks from a plethora of investment opportunities.
Here the Zacks Stock Screener comes in handy. With the help of the screener, we have identified the aforementioned four stocks that have a favorable combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Per Zacks’ proprietary methodology, stocks with such a favorable combination offer solid investment opportunities. The Zacks Growth Style Score condenses all the essential metrics from a company’s financial statements to get a true sense of the quality and sustainability of its growth.
We have further narrowed our search to four defensive stocks that have seen solid earnings estimate revisions in the past 60 days. Moreover, these companies are regular dividend payers.
Our Top Picks
Archer Daniels is the successor to the Daniels Linseed Co. Founded in 1902, this Illinois-based company is one of the leading producers of food and beverage ingredients as well as goods made from various agricultural products.
Archer Daniels has been gaining from solid demand, improved productivity and product innovations. Persistent growth in the Nutrition segment of ADM, aided by significant gains in the Human and Animal Nutrition units, remains the key growth driver. The company expects the nutrition segment to record operating profit growth of 15%-20% in 2022.
At present, ADM has a Zacks Rank of 1 and a Growth Score of A. The company has an expected earnings growth rate of 44.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 9.5% over the past 60 days. The stock has a dividend yield of 1.76% and a five-year historical dividend growth rate of 4%. Further, ADM's payout ratio is 22% of earnings at present. Check Archer Daniels’s dividend history here.
Archer Daniels Midland Company Price and Consensus
Archer Daniels Midland Company price-consensus-chart | Archer Daniels Midland Company Quote
Hershey is the largest chocolate manufacturer in North America as well as a global leader in chocolate and non-chocolate confectionery. In addition, Hershey manufactures pantry items like baking ingredients, toppings and beverages; and gum and mint refreshment products; snack bites and mixes, as well as spreads.
HSY is steadily gaining momentum in the confectionary space with consistent acquisitions. Its buyouts continue to augment portfolio strength and boost revenues. This was seen in the third quarter of 2022, when buyouts of Pretzels and Dot’s boosted net sales by 4.1 points.
Hershey carries a Zacks Rank of 2 and has a Growth Score of B. The company has an expected earnings growth rate of 15.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 6 cents over the past 60 days. The stock has a dividend yield of 1.78% and five-year historical dividend growth of 8.2%. Further, HSY's payout ratio is 51% of earnings at present. Check Hershey’s dividend history here.
Hershey Company The Price and Consensus
Hershey Company The price-consensus-chart | Hershey Company The Quote
UnitedHealth provides a wide range of healthcare products and services, such as health maintenance organizations, point-of-service plans, preferred provider organizations, and managed fee-for-service programs. At present, UNH has a Zacks Rank of 2 and a Growth Score of A.
UnitedHealth’s top line has been growing and the momentum should continue in the years ahead on the back of a strong market position, new deals, renewed agreements and expansion of service offerings. Revenues for 2022 are predicted at around $324 billion. The company's solid health services segment provides diversification benefits while its Government business remains well-poised for growth. A sturdy balance sheet provides ample financial flexibility for investments in new growth opportunities.
UnitedHealth has an expected earnings growth rate of 15.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 16 cents over the last 60 days. The stock has a dividend yield of 1.23% and a five-year historical dividend growth rate of 17.5%. Further, UNH's payout ratio is 31% of earnings at present. Check UnitedHealth’s dividend history here.
UnitedHealth Group Incorporated Price and Consensus
UnitedHealth Group Incorporated price-consensus-chart | UnitedHealth Group Incorporated Quote
Merck boasts more than six blockbuster drugs in its portfolio, including the PD-L1 inhibitor, Keytruda, which is approved for several types of cancer and alone accounts for around 40% of its pharmaceutical sales. Keytruda, Gardasil vaccine and Bridion have been driving sales.
Keytruda has played an instrumental role in driving Merck’s revenue growth in the past few years. Keytruda is growing continuously and expanding into new indications and markets globally. With continued label expansion into new indications & early-stage settings, Keytruda is expected to remain a key top-line driver.
Animal health and vaccine products are core growth drivers. Merck’s new COVID oral antiviral pill, Lagevrio has been a key top-line driver in 2022. Merck boasts a strong cancer pipeline, including Keytruda, which should help drive long-term growth.
Merck carries a Zacks Rank of 2 and has a Growth Score of B. The company has an expected earnings growth rate of 22.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by a penny over the past 60 days. The stock has a dividend yield of 2.51% and a five-year historical dividend growth rate of approximately 9%. Further, MRK's payout ratio is 36% of earnings at present. Check Merck’s dividend history here.
Merck & Co., Inc. Price and Consensus
Merck & Co., Inc. price-consensus-chart | Merck & Co., Inc. Quote