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Volatility on the Rise: Rotate into these Top-Ranked Defensive Stocks
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Finally, US equities are beginning to see early signs of a correction, with the volatility index jumping 10% on the day as of this writing. That is not to say that I am expecting anything too severe, but a ‘garden variety’ pull-back would be productive for the longer-term bull run.
Now, while this pullback should create opportunities to buy the dip on some of the leading stocks, I still like big-tech and artificial intelligence adjacent stocks, they still have some room to fall before they are again attractive.
However, there are a handful of defensive stocks that are appealing right now and should remain strong as the broader market sells off. I have identified three stocks that are showing considerable relative strength during today’s weak trading session and boast top Zacks Ranks.
Below we can see the Nasdaq 100 index breaking down from an ascending channel. The 2021 former all-time high, may be a level the market gravitates towards. There is a similar setup in the S&P 500 index as well.
Image Source: TradingView
Marathon Petroleum
Oil stocks and the underlying commodity have quietly run higher this year. The Energy Sector ETF (XLE - Free Report) has rallied 15% YTD, while crude oil has gained 20% since the start of the year.
Marathon Petroleum (MPC - Free Report) has been a standout performer, with the share price up an impressive 40% YTD. Over the last decade, Marathon Petroleum has compounded at a very respectable 16.9% annually, outperforming the broad market.
Marathon Petroleum is a leading integrated energy company in the US, involved in refining, marketing, and transporting petroleum products. Operating one of the largest refining systems in the country, Marathon Petroleum processes crude oil into gasoline, diesel, and other products distributed through its extensive network of retail stations and wholesale channels.
Additionally, the company is engaged in the transportation and storage of petroleum products through pipelines, terminals, and marine vessels, ensuring efficient distribution across the nation.
Image Source: Zacks Investment Research
Marathon Petroleum has also been a share cannibal, nearly halving the shares outstanding in the last five years. And with the dividend payout growing from $2.12 per share to $3.08, it is clear management is committed to returning cash to shareholders.
Image Source: Zacks Investment Research
Finally, Marathon enjoys a Zacks Rank #1 (Strong Buy) rating, indicating strongly upward trending earnings revisions. Current quarter earnings estimates have jumped 48% in the last month, while FY24 have climbed 10.2%.
With the price of crude approaching $85, we should expect MPC and other oil stocks to see hefty increases in profits. The Zacks Earnings ESP (Expected Surprise Prediction) is forecasting a 33% beat for Marathon at the next quarterly earnings report.
Image Source: Zacks Investment Research
The Kroger Co.
Another stock that is showing considerable relative strength against the broader market is The Kroger Co. (KR - Free Report) . After smashing earnings estimates by 18% at the last quarterly earnings meeting, The Kroger Co shot higher.
Kroger is one of the largest supermarket chains in the US, operating over 2,750 grocery retail stores across the country. It offers a wide range of products, including groceries, pharmaceuticals, and general merchandise, catering to diverse consumer needs.
Image Source: TradingView
Like Marathon, Kroger is also a chronic buyer of its stock, reducing the shares outstanding by 30% over the last ten years. Additionally, the grocer has been steadily raising dividend payments, which have more than tripled over that same time. The dividend yield on KR is now 2%.
Image Source: Zacks Investment Research
The Kroger Co. also has a Zacks Rank #2 (Buy) rating, reflecting upward revisions to its earnings estimates. Although current quarter earnings have been lowered by analysts, the rest of the timeframes have seen unanimous upgrades. Next year’s earnings estimates have jumped by nearly 5% and are projected to see a 5% YoY increase.
Image Source: Zacks Investment Research
Murphy USA
With crude oil clearly showing a strong bullish trend, I had to include a second energy stock. Murphy USA (MUSA - Free Report) is another Zacks Rank #1 (Strong Buy) stock with many attributes of a winner.
Murphy USA is a leading retail fueling company in the US, operating a chain of convenience stores and gas stations primarily located near Walmart stores. Offering a range of fuel options, including gasoline and diesel, Murphy USA serves customers with convenient access to fuel and convenience store services.
The company's stores also provide various amenities such as snacks, beverages, tobacco products, and automotive supplies, catering to the needs of travelers and local communities. With a focus on competitive pricing, convenience, and customer service, Murphy USA continues to expand its footprint and enhance its offerings to meet the evolving needs of consumers nationwide.
Murphy USA’s performance speaks for itself – over the last decade the stock has grown at an annual pace of 26.4%, nearly 10xing investors money in that time. Because of its exclusively retail business model, Murphy USA shows much less cyclicality than its producer and refining peers.
Image Source: Zacks Investment Research
Again, like the others, MUSA is a steady buyer of its own shares, more than halving the shares outstanding in the last ten years. Additionally, after introducing a dividend payment in 2020, it has grown from $0.25 to $1.55 per share.
Image Source: Zacks Investment Research
Excluding the current quarter’s earnings estimates, all other future time frames have seen strong upgrades to earnings expectations. In addition to the earnings upgrades, Murphy USA is one of the few energy companies expecting YoY growth in earnings, with FY24 expected increase 3.3% and FY25 by 6.2%.
Image Source: Zacks Investment Research
Bottom Line
For investors keen on adding some defensive exposure to their portfolios these three stocks would be a fantastic place to begin researching. In addition to the near-term bullish catalysts, they are also well-established businesses with very strong long-term outlooks.
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Volatility on the Rise: Rotate into these Top-Ranked Defensive Stocks
Finally, US equities are beginning to see early signs of a correction, with the volatility index jumping 10% on the day as of this writing. That is not to say that I am expecting anything too severe, but a ‘garden variety’ pull-back would be productive for the longer-term bull run.
Now, while this pullback should create opportunities to buy the dip on some of the leading stocks, I still like big-tech and artificial intelligence adjacent stocks, they still have some room to fall before they are again attractive.
However, there are a handful of defensive stocks that are appealing right now and should remain strong as the broader market sells off. I have identified three stocks that are showing considerable relative strength during today’s weak trading session and boast top Zacks Ranks.
Below we can see the Nasdaq 100 index breaking down from an ascending channel. The 2021 former all-time high, may be a level the market gravitates towards. There is a similar setup in the S&P 500 index as well.
Image Source: TradingView
Marathon Petroleum
Oil stocks and the underlying commodity have quietly run higher this year. The Energy Sector ETF (XLE - Free Report) has rallied 15% YTD, while crude oil has gained 20% since the start of the year.
Marathon Petroleum (MPC - Free Report) has been a standout performer, with the share price up an impressive 40% YTD. Over the last decade, Marathon Petroleum has compounded at a very respectable 16.9% annually, outperforming the broad market.
Marathon Petroleum is a leading integrated energy company in the US, involved in refining, marketing, and transporting petroleum products. Operating one of the largest refining systems in the country, Marathon Petroleum processes crude oil into gasoline, diesel, and other products distributed through its extensive network of retail stations and wholesale channels.
Additionally, the company is engaged in the transportation and storage of petroleum products through pipelines, terminals, and marine vessels, ensuring efficient distribution across the nation.
Image Source: Zacks Investment Research
Marathon Petroleum has also been a share cannibal, nearly halving the shares outstanding in the last five years. And with the dividend payout growing from $2.12 per share to $3.08, it is clear management is committed to returning cash to shareholders.
Image Source: Zacks Investment Research
Finally, Marathon enjoys a Zacks Rank #1 (Strong Buy) rating, indicating strongly upward trending earnings revisions. Current quarter earnings estimates have jumped 48% in the last month, while FY24 have climbed 10.2%.
With the price of crude approaching $85, we should expect MPC and other oil stocks to see hefty increases in profits. The Zacks Earnings ESP (Expected Surprise Prediction) is forecasting a 33% beat for Marathon at the next quarterly earnings report.
Image Source: Zacks Investment Research
The Kroger Co.
Another stock that is showing considerable relative strength against the broader market is The Kroger Co. (KR - Free Report) . After smashing earnings estimates by 18% at the last quarterly earnings meeting, The Kroger Co shot higher.
Kroger is one of the largest supermarket chains in the US, operating over 2,750 grocery retail stores across the country. It offers a wide range of products, including groceries, pharmaceuticals, and general merchandise, catering to diverse consumer needs.
Image Source: TradingView
Like Marathon, Kroger is also a chronic buyer of its stock, reducing the shares outstanding by 30% over the last ten years. Additionally, the grocer has been steadily raising dividend payments, which have more than tripled over that same time. The dividend yield on KR is now 2%.
Image Source: Zacks Investment Research
The Kroger Co. also has a Zacks Rank #2 (Buy) rating, reflecting upward revisions to its earnings estimates. Although current quarter earnings have been lowered by analysts, the rest of the timeframes have seen unanimous upgrades. Next year’s earnings estimates have jumped by nearly 5% and are projected to see a 5% YoY increase.
Image Source: Zacks Investment Research
Murphy USA
With crude oil clearly showing a strong bullish trend, I had to include a second energy stock. Murphy USA (MUSA - Free Report) is another Zacks Rank #1 (Strong Buy) stock with many attributes of a winner.
Murphy USA is a leading retail fueling company in the US, operating a chain of convenience stores and gas stations primarily located near Walmart stores. Offering a range of fuel options, including gasoline and diesel, Murphy USA serves customers with convenient access to fuel and convenience store services.
The company's stores also provide various amenities such as snacks, beverages, tobacco products, and automotive supplies, catering to the needs of travelers and local communities. With a focus on competitive pricing, convenience, and customer service, Murphy USA continues to expand its footprint and enhance its offerings to meet the evolving needs of consumers nationwide.
Murphy USA’s performance speaks for itself – over the last decade the stock has grown at an annual pace of 26.4%, nearly 10xing investors money in that time. Because of its exclusively retail business model, Murphy USA shows much less cyclicality than its producer and refining peers.
Image Source: Zacks Investment Research
Again, like the others, MUSA is a steady buyer of its own shares, more than halving the shares outstanding in the last ten years. Additionally, after introducing a dividend payment in 2020, it has grown from $0.25 to $1.55 per share.
Image Source: Zacks Investment Research
Excluding the current quarter’s earnings estimates, all other future time frames have seen strong upgrades to earnings expectations. In addition to the earnings upgrades, Murphy USA is one of the few energy companies expecting YoY growth in earnings, with FY24 expected increase 3.3% and FY25 by 6.2%.
Image Source: Zacks Investment Research
Bottom Line
For investors keen on adding some defensive exposure to their portfolios these three stocks would be a fantastic place to begin researching. In addition to the near-term bullish catalysts, they are also well-established businesses with very strong long-term outlooks.