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4 Defensive Bets to Pacify Pessimists to Ride Market Storms
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The prolonged downfall of the U.S. equity market has been continuously pushing investor sentiment into the negative territory since the beginning of 2022.
The Nasdaq composite, the S&P 500 and the Dow Jones Industrial Average have been down 32.6%, 24.2% and 19.6%, respectively, on a year-to-date basis.
On Oct 10, 2022, the Nasdaq tumbled 104 basis points, its lowest level in two years. The S&P 500 and the Dow plummeted 75 and 32 basis points each.
Factors Impacting Market Dip
The downturn of the key metrics is attributed to the persistent slumping of technology stocks due to the coronavirus pandemic-triggered supply-chain constraints.
Moreover, the ongoing geopolitical tensions remain concerning. On Oct 7, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security released a report mentioning export rules to control US companies' sale of advanced computing semiconductors and related manufacturing equipment to China. This caused a dip in tech stocks, hitting Nasdaq the hardest on Monday.
Russia’s invasion of Ukraine and the China-Taiwan conflict, inducing global sanctions and energy crisis in the European Union, continue to affect the market.
All the aforesaid factors have been triggering the inflation rate due to which the Federal Reserve has taken hawkish stance to achieve a 2% target rate.
The annual inflation rate is 8.3% for the 12 months ended August 2022,according to the U.S. Labor Department data published on Sep 13, 2022.
To counter inflation woes, the Federal Reserve has been hiking the interest rate.
On Sep 21, 2022, the Fed announced an interest rate hike of 75 basis points, marking the fifth rate increase this year. The Fed expects rates to reach 4.4% by this year-end, up from the current range of 3-3.25%.
We note that the contractionary monetary policy will continue to raise the cost of borrowing, thereby affecting consumer spending. It will also result in a higher unemployment rate, slowing down economic growth. The United States recorded two successive quarters of downslide.
Defensive Stocks Provide a Hedge Against Market Unrest
Weighing the current market conditions and the growing fears of an upcoming recession, it would be wise for investors to park their money in the defensive sectors like consumer staples, utilities and health care.
These sectors comprise companies providing necessary products and services, which consumers will continue to avail even in the worst economic times.
Stocks catering to the defensive sectors are less likely to get affected by the economic turbulence and will thus remain a suitable choice for risk-averse investors.
In addition, defensive stocks tend to offer high-dividend yields, and cater to capital preservation and income generation, thereby emerging as solid picks for investors to diversify their portfolios and generate stable earnings.
Our Top Stock Suggestions
We recommend four defensive stocks as these are less sensitive to taking a hit from an economic downturn. Apart from strong fundamentals, these stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a Growth Score of A or B. Moreover, these companies are regular dividend payers. You can see the complete list of today’s Zacks #1 Rank stocks here.
The following chart shows the price performance of our four picks in the year-to-date period.
Image Source: Zacks Investment Research
Lamb Weston (LW - Free Report) is a U.S.-based food processing company, which globally produces and distributes value-added frozen potato products, particularly French fries, and a range of appetizers. LW’s consistent efforts to boost offerings and expand capacity enable the company to effectively meet the rising demand conditions for snacks and fries.
Lamb Weston has an expected earnings growth rate of 42.3% for the current year. Its board members recently approved a quarterly dividend of 24.5 cents per share, payable Dec 2, 2022. LW has a current dividend yield of 1.18%.
At present, Lamb Weston has a Zacks Rank of 1 and a Growth Score of A. The long-term earnings growth rate for the stock is currently projected at 26.89%. LW has returned 30.8% in the year-to-date period.
Consolidated Water (CWCO - Free Report) is a leading company involved in developing and operating seawater desalination plants and water distribution systems in areas where naturally-occurring supplies of potable water are scarce or nonexistent. Its strategies to expand operations through acquisitions and organic ventures with an important requirement for potable water are driving growth.
CWCO has an expected earnings growth rate of 217.4% for the current year. Its board approved a quarterly dividend of 8.5 cents per share, payable Oct 31, 2022. Consolidated Water has a current dividend yield of 2.09%.
Consolidated Water has a Zacks Rank #2 and a Growth Score of A. The long-term earnings growth rate for the stock is presently projected at 8%. Shares of CWCO have returned 53% in the year-to-date period.
McKesson Corporation (MCK - Free Report) is a healthcare services and information technology company. Its strong position in the pharmaceutical and medical supplies distribution market is noteworthy. MCK played a crucial role in COVID-response efforts in the United States and abroad via the distribution of vaccines, ancillary supply kits and COVID-19 tests.
McKesson has an expected earnings growth rate of 3.04% for the current year. Its board approved a quarterly dividend of 54 cents per share, payable Oct 3, 2022. The declared dividend is a 15% hike from the prior quarter’s figure. MCK has a current dividend yield of 0.62%.
Currently, MCK has a Zacks Rank of 2 and a Growth Score of B. The long-term earnings growth rate for the stock is presently projected at 10.05%. Shares of McKesson have returned 39.7% in the year-to-date period.
Hershey (HSY - Free Report) is a global leader in chocolate and non-chocolate confectionery. 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 second quarter of 2022, when buyouts of Pretzels, Dot’s and Lily’s boosted net sales by 5.3 points.
Hershey has an expected earnings growth rate of 14.4% for the current year. HSY paid out a quarterly dividend of $1.036 per share for its common stock and 94.2 cents for Class B common stock on Sep 15, 2022, reflecting a 15% hike. HSY has a current dividend yield of 1.85%.
Hershey is currently Zacks #2 Ranked and has a Growth Score of B. The long-term earnings growth rate for the stock is currently projected at 7.7%. HSY has returned 15.6% on a year-to-date basis.
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4 Defensive Bets to Pacify Pessimists to Ride Market Storms
The prolonged downfall of the U.S. equity market has been continuously pushing investor sentiment into the negative territory since the beginning of 2022.
The Nasdaq composite, the S&P 500 and the Dow Jones Industrial Average have been down 32.6%, 24.2% and 19.6%, respectively, on a year-to-date basis.
On Oct 10, 2022, the Nasdaq tumbled 104 basis points, its lowest level in two years. The S&P 500 and the Dow plummeted 75 and 32 basis points each.
Factors Impacting Market Dip
The downturn of the key metrics is attributed to the persistent slumping of technology stocks due to the coronavirus pandemic-triggered supply-chain constraints.
Moreover, the ongoing geopolitical tensions remain concerning. On Oct 7, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security released a report mentioning export rules to control US companies' sale of advanced computing semiconductors and related manufacturing equipment to China. This caused a dip in tech stocks, hitting Nasdaq the hardest on Monday.
Russia’s invasion of Ukraine and the China-Taiwan conflict, inducing global sanctions and energy crisis in the European Union, continue to affect the market.
All the aforesaid factors have been triggering the inflation rate due to which the Federal Reserve has taken hawkish stance to achieve a 2% target rate.
The annual inflation rate is 8.3% for the 12 months ended August 2022,according to the U.S. Labor Department data published on Sep 13, 2022.
To counter inflation woes, the Federal Reserve has been hiking the interest rate.
On Sep 21, 2022, the Fed announced an interest rate hike of 75 basis points, marking the fifth rate increase this year. The Fed expects rates to reach 4.4% by this year-end, up from the current range of 3-3.25%.
We note that the contractionary monetary policy will continue to raise the cost of borrowing, thereby affecting consumer spending. It will also result in a higher unemployment rate, slowing down economic growth. The United States recorded two successive quarters of downslide.
Defensive Stocks Provide a Hedge Against Market Unrest
Weighing the current market conditions and the growing fears of an upcoming recession, it would be wise for investors to park their money in the defensive sectors like consumer staples, utilities and health care.
These sectors comprise companies providing necessary products and services, which consumers will continue to avail even in the worst economic times.
Stocks catering to the defensive sectors are less likely to get affected by the economic turbulence and will thus remain a suitable choice for risk-averse investors.
In addition, defensive stocks tend to offer high-dividend yields, and cater to capital preservation and income generation, thereby emerging as solid picks for investors to diversify their portfolios and generate stable earnings.
Our Top Stock Suggestions
We recommend four defensive stocks as these are less sensitive to taking a hit from an economic downturn. Apart from strong fundamentals, these stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a Growth Score of A or B. Moreover, these companies are regular dividend payers. You can see the complete list of today’s Zacks #1 Rank stocks here.
The following chart shows the price performance of our four picks in the year-to-date period.
Image Source: Zacks Investment Research
Lamb Weston (LW - Free Report) is a U.S.-based food processing company, which globally produces and distributes value-added frozen potato products, particularly French fries, and a range of appetizers. LW’s consistent efforts to boost offerings and expand capacity enable the company to effectively meet the rising demand conditions for snacks and fries.
Lamb Weston has an expected earnings growth rate of 42.3% for the current year. Its board members recently approved a quarterly dividend of 24.5 cents per share, payable Dec 2, 2022. LW has a current dividend yield of 1.18%.
At present, Lamb Weston has a Zacks Rank of 1 and a Growth Score of A. The long-term earnings growth rate for the stock is currently projected at 26.89%. LW has returned 30.8% in the year-to-date period.
Consolidated Water (CWCO - Free Report) is a leading company involved in developing and operating seawater desalination plants and water distribution systems in areas where naturally-occurring supplies of potable water are scarce or nonexistent. Its strategies to expand operations through acquisitions and organic ventures with an important requirement for potable water are driving growth.
CWCO has an expected earnings growth rate of 217.4% for the current year. Its board approved a quarterly dividend of 8.5 cents per share, payable Oct 31, 2022. Consolidated Water has a current dividend yield of 2.09%.
Consolidated Water has a Zacks Rank #2 and a Growth Score of A. The long-term earnings growth rate for the stock is presently projected at 8%. Shares of CWCO have returned 53% in the year-to-date period.
McKesson Corporation (MCK - Free Report) is a healthcare services and information technology company. Its strong position in the pharmaceutical and medical supplies distribution market is noteworthy. MCK played a crucial role in COVID-response efforts in the United States and abroad via the distribution of vaccines, ancillary supply kits and COVID-19 tests.
McKesson has an expected earnings growth rate of 3.04% for the current year. Its board approved a quarterly dividend of 54 cents per share, payable Oct 3, 2022. The declared dividend is a 15% hike from the prior quarter’s figure. MCK has a current dividend yield of 0.62%.
Currently, MCK has a Zacks Rank of 2 and a Growth Score of B. The long-term earnings growth rate for the stock is presently projected at 10.05%. Shares of McKesson have returned 39.7% in the year-to-date period.
Hershey (HSY - Free Report) is a global leader in chocolate and non-chocolate confectionery. 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 second quarter of 2022, when buyouts of Pretzels, Dot’s and Lily’s boosted net sales by 5.3 points.
Hershey has an expected earnings growth rate of 14.4% for the current year. HSY paid out a quarterly dividend of $1.036 per share for its common stock and 94.2 cents for Class B common stock on Sep 15, 2022, reflecting a 15% hike. HSY has a current dividend yield of 1.85%.
Hershey is currently Zacks #2 Ranked and has a Growth Score of B. The long-term earnings growth rate for the stock is currently projected at 7.7%. HSY has returned 15.6% on a year-to-date basis.