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5 Safe Stocks to Buy as SVB Collapse Shakes Wall Street
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Wall Street closed sharply lower last week following the collapse of the biggest regional bank. The Dow slid 4.4%, marking its biggest weekly decline since June 2022. The S&P 500 shed 4.6%, reflecting its largest weekly drop since September 2022. The Nasdaq Composite tumbled 4.7%, posting the single-largest weekly fall since November 2022.
On Mar 10, the Federal Deposit Insurance Corp. (FDIC) announced that regulators closed Silicon Valley Bank (SVB) and took control of its deposits. This was the biggest bank failure in the United States since the collapse of Washington Mutual in 2008 and the second-biggest bank failure in the nation’s history.
The privately controlled Silicon Valley Bank is a subsidiary of the SVB Financial Group (SIVB). The 40-year-old highly respected regional bank, which lends primarily to technology and biotechnology startups, was the first major victim of the aggressive interest rate hike policies adopted by the Fed to combat record-high inflation. The collapse of SVB resulted in a nearly 16% drop in the SPDR S&P Regional Banking ETF (KRE), last week.
SVB Becomes First Major Victim of Aggressive Rate Hike
The SVB was a highly recognized brand lending to startups as well as venture capitals and private equities. Due to rigorous rate hikes by the Fed in the past year to combat record-high inflation, the startup companies find it extremely difficult to raise funds either through IPO or private investment.
Startup clients of SVB withdrew deposits with the bank in order to keep their business running. As a result, SVB became short of capital. On Mar 8, SVB announced that it needed to raise at least $2.25 billion immediately as the bank was compelled to sell all of its available-for-sale bonds at a $1.75 billion loss.
This situation triggered a panic in the venture capitalist community, especially among those who have invested in startups that are clients of SVB. Once the venture capitalists instructed their clients to withdraw deposits from SVB, a staggering $42 billion in deposits were removed by the end of Mar 9. SVB had a negative cash balance of $958 million. The bank failed to find a buyer, finally prompting the regulators to take control of its deposits.
Broad-Market May Face Domino Effect
A large section of economists and financial experts have warned the Federal Government to immediately find a buyer for SVB or else the ripple effect of the bank’s failure will shake the broad market. Nearly 95% of SVB’s deposits are uninsured, and most of the money comes from the bank’s startup clients. These startup companies will find it difficult to pay their employees this month.
On Mar 9, Silvergate Capital Corp. (SI), a major lender to the crypto industry, announced that it would be shutting down operations and liquidating its bank. Moreover, Circle Internet Financial Ltd., has $3.3 billion of reserves held at SVB. The company is the issuer of the crypto’s second-largest stablecoin, the USDC.
Market participants are highly concerned that the collapse of SVB will significantly dent the confidence of U.S. small and mid-sized banks. The SVB takes centerstage, providing seed capital, which is extremely important for early-stage startups. Following the collapse of SVB, venture capitalists and private equities will be under pressure to raise more capital.
Our Top Picks
At this juncture, it will be prudent to stay with safe stocks. We use five selection criteria to find safe stocks. Fist, low-beta (beta >0 <1) stocks with market capital > $10 billion. Second, stocks having a current dividend yield of more than 2%, which will act as an income stream during extreme volatility. Third, stocks that have solid growth potential for both top and bottom line in 2023.
Fourth, stocks that have seen positive earnings estimate revisions in the last 30 days, indicating investor’s expectation of strong business potential in 2023. Finally, each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
Cardinal Health Inc. (CAH - Free Report) has witnessed revenue growth in its pharmaceutical businesses. CAH’s diversified product portfolio and long-term supply agreements augur well. Plans to build a new medical distribution center in the central Ohio area, partnership with Innara Health and Kinaxis, and the introduction of the first surgical incise drape announced during the fourth quarter fiscal 2022 is encouraging. A solid solvency position is another plus.
Cardinal Health has an expected revenue and earnings growth rate of 11.3% and 7.1%, respectively, for the current year (ending June 2023). The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the last 30 days. CAH has a current dividend yield of 2.79% and a beta of 0.76.
The Coca-Cola Co. (KO - Free Report) has benefited from its strategic transformation and ongoing recovery around the world. Strength across the majority of markets, investments in marketplace, recovery in certain markets as well as the cycling of last year’s pandemic-led impacts aided volumes. KO is poised to gain from innovations and accelerating digital investments.
Coca-Cola has an expected revenue and earnings growth rate of 4.2% and 4.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.6% over the last 30 days. KO has a current dividend yield of 2.97% and a beta of 0.53.
General Mills Inc. (GIS - Free Report) has been gaining from its Accelerate strategy, which is highlighted by its key priorities. These include competing efficiently, investing in Holistic Margin Management and Strategic Revenue Management initiatives and reshaping the portfolio.
GIS’ recent portfolio reshaping actions are likely to drive long-term growth. In fiscal 2023, management expects an increase in the cost of goods sold. That said, saving and pricing actions should aid. GIS is also gaining per unit, as seen in the second quarter of fiscal 2023 when the top and bottom lines grew year over year. We expect organic sales to grow 8.2% in fiscal 2023, which is within management’s view of 8-9%.
General Mills has an expected revenue and earnings growth rate of 5% and 6.1%, respectively, for the current year (May 2023). The Zacks Consensus Estimate for current-year earnings has improved 1.5% over the last 30 days. GIS has a current dividend yield of 2.75% and a beta of 0.28.
The Clorox Co. (CLX - Free Report) manufactures and markets consumer and professional products worldwide. CLX benefited from solid demand, cost-saving efforts, strong execution, and pricing actions.
CLX has been on track with its IGNITE strategy and digital investments to transition to a cloud-based platform. Also, continued strength in the international segment bodes well. Fiscal 2023 organic sales are anticipated to be flat to up 3%, in sync with our estimate of 1.6% growth.
Clorox has an expected revenue and earnings growth rate of 0.5% and 3.2%, respectively, for the current year (June 2023). The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 30 days. CLX has a current dividend yield of 3.14% and a beta of 0.29.
Cincinnati Financial Corp. (CINF - Free Report) continues to increase premiums through a disciplined expansion of Cincinnati Re as the division makes a nice contribution to its overall earnings. Price increases and a higher level of insured exposures are the other positives.
CINF is focused on earning new businesses by appointing new agencies and believes that an agent-focused business model will drive long-term premium growth. Cincinnati Financial expects 2023 property-casualty premium to grow 8% while its agent-focused business model should drive long-term premium growth. CINF boasts a solid capital position based on which it has returned value to its shareholders. Consistent cash flow and sufficient cash balances will continue to boost liquidity.
Cincinnati Financial has an expected revenue and earnings growth rate of 7.5% and 21.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.8% over the last 30 days. CINF has a current dividend yield of 2.45% and a beta of 0.63.
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5 Safe Stocks to Buy as SVB Collapse Shakes Wall Street
Wall Street closed sharply lower last week following the collapse of the biggest regional bank. The Dow slid 4.4%, marking its biggest weekly decline since June 2022. The S&P 500 shed 4.6%, reflecting its largest weekly drop since September 2022. The Nasdaq Composite tumbled 4.7%, posting the single-largest weekly fall since November 2022.
On Mar 10, the Federal Deposit Insurance Corp. (FDIC) announced that regulators closed Silicon Valley Bank (SVB) and took control of its deposits. This was the biggest bank failure in the United States since the collapse of Washington Mutual in 2008 and the second-biggest bank failure in the nation’s history.
The privately controlled Silicon Valley Bank is a subsidiary of the SVB Financial Group (SIVB). The 40-year-old highly respected regional bank, which lends primarily to technology and biotechnology startups, was the first major victim of the aggressive interest rate hike policies adopted by the Fed to combat record-high inflation. The collapse of SVB resulted in a nearly 16% drop in the SPDR S&P Regional Banking ETF (KRE), last week.
SVB Becomes First Major Victim of Aggressive Rate Hike
The SVB was a highly recognized brand lending to startups as well as venture capitals and private equities. Due to rigorous rate hikes by the Fed in the past year to combat record-high inflation, the startup companies find it extremely difficult to raise funds either through IPO or private investment.
Startup clients of SVB withdrew deposits with the bank in order to keep their business running. As a result, SVB became short of capital. On Mar 8, SVB announced that it needed to raise at least $2.25 billion immediately as the bank was compelled to sell all of its available-for-sale bonds at a $1.75 billion loss.
This situation triggered a panic in the venture capitalist community, especially among those who have invested in startups that are clients of SVB. Once the venture capitalists instructed their clients to withdraw deposits from SVB, a staggering $42 billion in deposits were removed by the end of Mar 9. SVB had a negative cash balance of $958 million. The bank failed to find a buyer, finally prompting the regulators to take control of its deposits.
Broad-Market May Face Domino Effect
A large section of economists and financial experts have warned the Federal Government to immediately find a buyer for SVB or else the ripple effect of the bank’s failure will shake the broad market. Nearly 95% of SVB’s deposits are uninsured, and most of the money comes from the bank’s startup clients. These startup companies will find it difficult to pay their employees this month.
On Mar 9, Silvergate Capital Corp. (SI), a major lender to the crypto industry, announced that it would be shutting down operations and liquidating its bank. Moreover, Circle Internet Financial Ltd., has $3.3 billion of reserves held at SVB. The company is the issuer of the crypto’s second-largest stablecoin, the USDC.
Market participants are highly concerned that the collapse of SVB will significantly dent the confidence of U.S. small and mid-sized banks. The SVB takes centerstage, providing seed capital, which is extremely important for early-stage startups. Following the collapse of SVB, venture capitalists and private equities will be under pressure to raise more capital.
Our Top Picks
At this juncture, it will be prudent to stay with safe stocks. We use five selection criteria to find safe stocks. Fist, low-beta (beta >0 <1) stocks with market capital > $10 billion. Second, stocks having a current dividend yield of more than 2%, which will act as an income stream during extreme volatility. Third, stocks that have solid growth potential for both top and bottom line in 2023.
Fourth, stocks that have seen positive earnings estimate revisions in the last 30 days, indicating investor’s expectation of strong business potential in 2023. Finally, each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
Cardinal Health Inc. (CAH - Free Report) has witnessed revenue growth in its pharmaceutical businesses. CAH’s diversified product portfolio and long-term supply agreements augur well. Plans to build a new medical distribution center in the central Ohio area, partnership with Innara Health and Kinaxis, and the introduction of the first surgical incise drape announced during the fourth quarter fiscal 2022 is encouraging. A solid solvency position is another plus.
Cardinal Health has an expected revenue and earnings growth rate of 11.3% and 7.1%, respectively, for the current year (ending June 2023). The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the last 30 days. CAH has a current dividend yield of 2.79% and a beta of 0.76.
The Coca-Cola Co. (KO - Free Report) has benefited from its strategic transformation and ongoing recovery around the world. Strength across the majority of markets, investments in marketplace, recovery in certain markets as well as the cycling of last year’s pandemic-led impacts aided volumes. KO is poised to gain from innovations and accelerating digital investments.
Coca-Cola has an expected revenue and earnings growth rate of 4.2% and 4.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.6% over the last 30 days. KO has a current dividend yield of 2.97% and a beta of 0.53.
General Mills Inc. (GIS - Free Report) has been gaining from its Accelerate strategy, which is highlighted by its key priorities. These include competing efficiently, investing in Holistic Margin Management and Strategic Revenue Management initiatives and reshaping the portfolio.
GIS’ recent portfolio reshaping actions are likely to drive long-term growth. In fiscal 2023, management expects an increase in the cost of goods sold. That said, saving and pricing actions should aid. GIS is also gaining per unit, as seen in the second quarter of fiscal 2023 when the top and bottom lines grew year over year. We expect organic sales to grow 8.2% in fiscal 2023, which is within management’s view of 8-9%.
General Mills has an expected revenue and earnings growth rate of 5% and 6.1%, respectively, for the current year (May 2023). The Zacks Consensus Estimate for current-year earnings has improved 1.5% over the last 30 days. GIS has a current dividend yield of 2.75% and a beta of 0.28.
The Clorox Co. (CLX - Free Report) manufactures and markets consumer and professional products worldwide. CLX benefited from solid demand, cost-saving efforts, strong execution, and pricing actions.
CLX has been on track with its IGNITE strategy and digital investments to transition to a cloud-based platform. Also, continued strength in the international segment bodes well. Fiscal 2023 organic sales are anticipated to be flat to up 3%, in sync with our estimate of 1.6% growth.
Clorox has an expected revenue and earnings growth rate of 0.5% and 3.2%, respectively, for the current year (June 2023). The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 30 days. CLX has a current dividend yield of 3.14% and a beta of 0.29.
Cincinnati Financial Corp. (CINF - Free Report) continues to increase premiums through a disciplined expansion of Cincinnati Re as the division makes a nice contribution to its overall earnings. Price increases and a higher level of insured exposures are the other positives.
CINF is focused on earning new businesses by appointing new agencies and believes that an agent-focused business model will drive long-term premium growth. Cincinnati Financial expects 2023 property-casualty premium to grow 8% while its agent-focused business model should drive long-term premium growth. CINF boasts a solid capital position based on which it has returned value to its shareholders. Consistent cash flow and sufficient cash balances will continue to boost liquidity.
Cincinnati Financial has an expected revenue and earnings growth rate of 7.5% and 21.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.8% over the last 30 days. CINF has a current dividend yield of 2.45% and a beta of 0.63.