Markets have climbed back in September after a rough and volatile August. Despite the comeback, which has the S&P 500 near its highs, fears of a global economic slowdown remain. These worries, coupled with the uncertainty from the ongoing U.S. and Chinese trade war prompted the U.S. Federal Reserve to cut its benchmark interest rate for the second time since July on Wednesday.
The Fed concluded its two-day policy meeting early Wednesday afternoon and announced that it voted to drop interest rates by 25 basis points to between 1.75% and 2%. Wall Street and traders had largely priced-in this rate cut, which the U.S. central bank made to help boost a slowing U.S. economy and fight off broader worldwide fears. Overall, seven out of 10 officials voted to cut the short-term benchmark rate.
Looking ahead, Fed Chairman Jerome Powell remains committed to his seemingly more pragmatic approach, as U.S. consumer spending remains strong. This means additional rate cuts are not guaranteed, even though many, including President Trump, have pushed for larger cuts. Trump tweeted shortly after the announcement: “Jay Powell and the Federal Reserve Fail Again. No “guts,” no sense, no vision! A terrible communicator!”
Trump and others have cited negative interest rates in countries such as Germany and Japan, as reason enough for the Fed to take a more dovish tone. Nonetheless, yields on the 10-year U.S. Treasury sat at roughly 1.78% through late afternoon trading.
With this in mind, we looked for strong, stable companies. We then added a dividend yield above the current 10-year U.S. Treasury’s payout to our criteria using the Zacks Stock Screener to help investors find stocks that look like solid buys given our current rate environment and economic picture.
1. Lockheed Martin (LMT - Free Report)
Lockheed Martin, like all three companies on this list, needs little preamble. The firm posted impressive second quarter 2019 results, which included a record $137 billion backlog, and upped its full-year guidance across all financial metrics. The Bethesda, Maryland-based global security and aerospace company is also set to benefit from increased U.S. government spending on next-generation technology, such as hypersonic missiles. Shares of LMT have soared 51% in 2019 to crush its industry’s 31% (Northrop Grumman (NOC - Free Report) , General Dynamics (GD - Free Report) , and others) average climb, as well as Boeing’s (BA - Free Report) 19%.
LMT is trading at 16.4X forward 12-month Zacks Consensus earnings estimates, which marks a discount against its industry’s 18.8X and its own three-year median of 19.7X. Along with its solid valuation, our estimates call for the firm’s adjusted full-year fiscal 2019 earnings to pop 20.5% on 10.3% higher revenue.
The company’s 2020 EPS figure is then expected to come in 18.3% above our 2019 estimate, on 4.4% stronger sales. Lockheed Martin has also seen some strong earnings estimate revision activity recently to help it earn a Zacks Rank #2 (Buy). Lastly, LMT currently pays an annualized dividend of $8.80 per share, for a 2.23% yield that rests firmly above the 10-year U.S. Treasury note’s 1.78%.
2. Procter & Gamble (PG - Free Report)
Procter & Gamble is one of the world’s largest makers of household goods, from Febreze and Swiffer to Head & Shoulders and Pampers—Fabric & Home Care accounts for 33% of sales, with Baby, Feminine & Family Care making up 27%. The consumer packed goods powerhouse has kept pace with the broader market over the last three years, despite facing encroachment from upstart and digital-first brands that have grabbed market share in the Amazon (AMZN - Free Report) and social media age, where consumers now shop directly from Instagram (FB - Free Report) . Nonetheless, Procter & Gamble continues to innovate and find new revenue streams, which includes a chain of Tide-branded dry cleaners.
PG shares have soared 45% during the last 12 months, against its industry’s 25% climb and the S&P 500’s 2%. This makes its 2.46% dividend yield all the more impressive since it is not artificially inflated by a falling stock price. With that said, Procter & Gamble’s outsized climb has stretched its valuation a bit, but PG stock still trades in line with its industry in terms of forward P/E.
Looking ahead, PG’s fiscal 2020 (current year) and 2021 revenues are projected to pop 4% and 3.4%, respectively. Meanwhile, the firm’s full-year earnings are expected to climb 7% this year and 6.3% above our 2020 estimate next year. Procter & Gamble is a Zacks Rank #2 (Buy) that also rocks an “A” grade for Growth in our Style scores system.
3. Coca-Cola (KO - Free Report)
Coca-Cola is the most well-known name on this list and is one of the most recognizable brands in the world. The soft drink giant came in at No. 6 on Forbes’ most valuable brands list, behind only tech names such as Apple (AAPL - Free Report) and Microsoft (MSFT - Free Report) . KO raised its full-year organic revenue outlook last quarter, and its non-sugary segment has grown at an impressive clip. The company is also poised to expand through acquisitions and investments. This includes its purchase of potential Starbucks (SBUX - Free Report) rival Costa Coffee and investment in Gatorade (PEP - Free Report) rival BodyArmor.
The Atlanta-based firm also recently rolled out of its first energy drink under the Coca-Cola brand. KO shares are up 17% in the past 12 months and 28% over the last three years, which comes in well above the Beverages Market’s 7% climb. Similar to PG, KO’s valuation picture is a tad extended right now as its shares rest near their 52-week highs.
Yet, Coca-Cola’s forward P/E remains just above its industry’s average, where it almost always trades. Coca-Cola’s growth outlook appears strong and its longer-term earnings estimate revision activity helps the stock hold a Zacks Rank #2 (Buy) at the moment. Along with its “B” grade for Growth, KO boasts the highest dividend yield on the list at 2.95%.
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