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Market Jitters: 2 Top Ranked Stocks for Defensive Positioning
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Just this morning, the CPI data reported a notable and surprise increase in the rate of inflation. Although disinflationary pressure have been strong since early 2023, it seems those forces have reversed, and policymakers may have to deal with the changing expectations.
Because of this reversal in disinflation, the market expectations for a rate cut have fallen, and futures markets are now pricing in just two rate cuts starting in September, from three cuts starting in June. It is a pretty significant shift and may have serious implications for the broader stock market.
Because of this development, I am looking for defensive stocks to consider moving into as the market prices in the shifting inflation and interest rate dynamics. Additionally, these companies don’t only offer near-term upside, but have been market beating stocks overs the long-term.
Image Source: Zacks Investment Research
DaVita
DaVita (DVA - Free Report) is a leading provider of kidney care services, including dialysis treatments and related services for patients with chronic kidney failure or end-stage renal disease. Headquartered in Denver, Colorado, DaVita operates a network of outpatient dialysis centers, home dialysis programs, and affiliated hospitals, serving patients across the United States and internationally.
Its worth noting that Warren Buffett's Berkshire Hathaway has made significant investments in DaVita over the years, with Berkshire Hathaway holding a notable stake in the company. Berkshire owns 41% of DaVita.
DaVita currently enjoys a Zacks Rank #1 (Strong Buy) rating, reflected by some hefty upward revisions to its earnings estimates. Additionally, over the next 3-5 years EPS are forecast to expand 12.2% annually, a nice pace for such a mature company.
Image Source: Zacks Investment Research
Another encouraging catalyst for DaVita stock is the technical picture. The price action in DVA has been building out a bull flag over the last five weeks, and if it can clear the $137 level, may send the stock to new highs.
Image Source: TradingView
DaVita is trading at a one year forward earnings multiple of 14.5x, which is well below the industry average, and just a touch below its 10-year median of 14.8x.
Image Source: Zacks Investment Research
HCA Healthcare
HCA Healthcare (HCA - Free Report) is one of the largest providers of healthcare services in the United States. Headquartered in Nashville, Tennessee, HCA operates a vast network of hospitals, surgery centers, urgent care centers, and physician practices across multiple states. The company offers a wide range of medical services, including general and specialized care, emergency medicine, surgery, oncology, cardiology, and women's health services.
HCA Healthcare has also experienced some earnings estimate revisions higher, giving it a Zacks Rank #2 (Buy) rating. And although the revisions are less significant than DVA, they are clearly trending higher.
Furthermore, HCA is forecasting some nice earnings growth over the next two years, with profits expected to climb 7.8% this year and 11.3% next year.
Image Source: Zacks Investment Research
Like DaVita, HCA Healthcare stock also has some bullish technical developments. HCA has been forming a convincing bull flag over the last month. If the stock can trade above the $333 level, it would signal a technical breakout, and likely draw in new buyers sending the stock higher.
Image Source: TradingView
Demonstrating a strong commitment to returning cash to shareholders, HCA has steadily bought back shares and raised dividend payouts. Shares outstanding have nearly halved over the last decade, and the dividend payment has increased by an average of 11.1% annually over the last five years. Today HCA pays a 0.8% yield.
HCA is trading at a one year forward earnings multiple of 16.1x, which is right in line with the industry average and above its 10-year median of 13.4x.
Image Source: Zacks Investment Research
Bottom Line
Healthcare stocks have long been known for their defensive characteristics, as the industry experiences little influence from the business cycle. Furthermore, as the average age of Americans rise, the demand for healthcare only rises, adding another long-term growth catalyst.
For investors looking to add exposure to high-quality healthcare stocks, HCA Healthcare and DaVita are worthy considerations.
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Market Jitters: 2 Top Ranked Stocks for Defensive Positioning
Just this morning, the CPI data reported a notable and surprise increase in the rate of inflation. Although disinflationary pressure have been strong since early 2023, it seems those forces have reversed, and policymakers may have to deal with the changing expectations.
Because of this reversal in disinflation, the market expectations for a rate cut have fallen, and futures markets are now pricing in just two rate cuts starting in September, from three cuts starting in June. It is a pretty significant shift and may have serious implications for the broader stock market.
Because of this development, I am looking for defensive stocks to consider moving into as the market prices in the shifting inflation and interest rate dynamics. Additionally, these companies don’t only offer near-term upside, but have been market beating stocks overs the long-term.
Image Source: Zacks Investment Research
DaVita
DaVita (DVA - Free Report) is a leading provider of kidney care services, including dialysis treatments and related services for patients with chronic kidney failure or end-stage renal disease. Headquartered in Denver, Colorado, DaVita operates a network of outpatient dialysis centers, home dialysis programs, and affiliated hospitals, serving patients across the United States and internationally.
Its worth noting that Warren Buffett's Berkshire Hathaway has made significant investments in DaVita over the years, with Berkshire Hathaway holding a notable stake in the company. Berkshire owns 41% of DaVita.
DaVita currently enjoys a Zacks Rank #1 (Strong Buy) rating, reflected by some hefty upward revisions to its earnings estimates. Additionally, over the next 3-5 years EPS are forecast to expand 12.2% annually, a nice pace for such a mature company.
Image Source: Zacks Investment Research
Another encouraging catalyst for DaVita stock is the technical picture. The price action in DVA has been building out a bull flag over the last five weeks, and if it can clear the $137 level, may send the stock to new highs.
Image Source: TradingView
DaVita is trading at a one year forward earnings multiple of 14.5x, which is well below the industry average, and just a touch below its 10-year median of 14.8x.
Image Source: Zacks Investment Research
HCA Healthcare
HCA Healthcare (HCA - Free Report) is one of the largest providers of healthcare services in the United States. Headquartered in Nashville, Tennessee, HCA operates a vast network of hospitals, surgery centers, urgent care centers, and physician practices across multiple states. The company offers a wide range of medical services, including general and specialized care, emergency medicine, surgery, oncology, cardiology, and women's health services.
HCA Healthcare has also experienced some earnings estimate revisions higher, giving it a Zacks Rank #2 (Buy) rating. And although the revisions are less significant than DVA, they are clearly trending higher.
Furthermore, HCA is forecasting some nice earnings growth over the next two years, with profits expected to climb 7.8% this year and 11.3% next year.
Image Source: Zacks Investment Research
Like DaVita, HCA Healthcare stock also has some bullish technical developments. HCA has been forming a convincing bull flag over the last month. If the stock can trade above the $333 level, it would signal a technical breakout, and likely draw in new buyers sending the stock higher.
Image Source: TradingView
Demonstrating a strong commitment to returning cash to shareholders, HCA has steadily bought back shares and raised dividend payouts. Shares outstanding have nearly halved over the last decade, and the dividend payment has increased by an average of 11.1% annually over the last five years. Today HCA pays a 0.8% yield.
HCA is trading at a one year forward earnings multiple of 16.1x, which is right in line with the industry average and above its 10-year median of 13.4x.
Image Source: Zacks Investment Research
Bottom Line
Healthcare stocks have long been known for their defensive characteristics, as the industry experiences little influence from the business cycle. Furthermore, as the average age of Americans rise, the demand for healthcare only rises, adding another long-term growth catalyst.
For investors looking to add exposure to high-quality healthcare stocks, HCA Healthcare and DaVita are worthy considerations.