5 Defensive Stocks to Buy Amid Growing Market Volatility
Wall Street has remained volatile over the past two-and-half months after a seven-month rally. The Federal Reserve’s monetary tightening campaign has seen inflation declining sharply over the past year but has once again started showing signs of increasing.
This has left market participants concerned as they are unable to gauge the Federal Reserve’s next move with its interest rate hikes. Given this situation, investing in defensive sector stocks such as Consolidated Water Co. Ltd. CWCO, Vistra Corp. VST, Xcel Energy Inc. XEL, PepsiCo, Inc. PEP and Lamb Weston Holdings, Inc. LW would be safe.
Inflation Increases Again
The Commerce Department reported on Oct 26 that the Personal Consumption Expenditure (PCE) Index came up with a reading of a 0.4% jump in inflation for September. Year over year, PCE inflation rose 3.4%.
Core PCE, which excludes the volatile food and energy costs, increased 0.3% month over month. Core PCE jumped 3.7% in September on a year-over-year basis as prices of goods and services both surged. Prices of goods rose 0.2%, while services jumped 0.5%.
The rise in September inflation was primarily because of a surge in food and energy prices. Energy prices jumped 1.7%, while food prices rose 0.3%.
The Federal Reserve has increased interest rates by 525 basis points since March 2022 and left its benchmark policy rate unchanged in September to the current range of 5.25-5.5%. However, Fed officials have continued with their hawkish stance and have hinted at another 25-basis point interest rate hike this year.
Also, it has downwardly revised its rate cut to two from four in 2024, which won’t come into effect before September 2024. This means higher interest rates are expected to stay for a longer period than previously forecast.
Moreover, the Fed has hinted at deciding on its interest rate hikes based on each meeting as and when it takes place. This has left investors worried as they are unable to gauge the Fed’s plans for its future rate hikes.
The uncertainty over rate hikes has seen the University of Michigan’s consumer sentiment reading plummeting to 63 in October, missing the consensus estimate of 67.4. This follows the final reading for September, which came in at 68.1. Consumer sentiment has now declined for the third straight month, the longest stretch since May.
Our Choices
To secure one's portfolio, we have thus narrowed our search to five stocks from the utilities and consumer staples stocks. Also, these belong to the category of low-beta stocks (beta greater than 0 but less than 1). Hence, the recommended approach is to invest in low-beta stocks with a high dividend yield and a favorable Zacks Rank. Each of the stocks has a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Consolidated Water Co. Ltd., along with its subsidiaries, is involved in the development and operation of seawater desalination plants and water distribution systems in areas where naturally occurring supplies of potable water are scarce or nonexistent. CWCO also focuses on expanding operations in areas with a large proportion of tourist properties and a growing population.
Consolidated Water Co. has an expected earnings growth rate of 170.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.1% over the last 60 days. CWCO presently carries a Zacks Rank #2. Consolidated Water has a beta of 0.17 and a current dividend yield of 1.31%.
Vistra Corp. is an energy company. VST offers electricity and power generation, distribution and transmission solutions. Vistra Energy Corp. is based in Dallas.
Vistra Energy has an expected earnings growth rate of 220.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 13.8% over the last 60 days. VST presently has a Zacks Rank #2. Vistra Energy has a beta of 0.94 and a current dividend yield of 2.57%.
Xcel Energy Inc. is a holding company with subsidiaries engaged primarily in the utility business. Through its four regulated utility subsidiaries, Northern States Power Company - Minnesota, NSP-Wisconsin, Public Service Company of Colorado and Southwestern Public Service Co. XEL serves electricity customers and natural gas customers.
Xcel Energy has an expected earnings growth rate of 5.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days. XEL currently holds a Zacks Rank #2. Xcel Energy has a beta of 0.41 and a current dividend yield of 3.57%.
PepsiCo, Inc. is one of the leading global food and beverage companies. PEP’s complementary brands/businesses include Frito-Lay snacks, Pepsi-Cola beverages, Gatorade sports drinks, Tropicana juices and Quaker foods. PepsiCo serves customers in more than 200 countries and territories.
PepsiCo has an expected earnings growth rate of 11.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last 60 days. PEP currently has a Zacks Rank #2. PepsiCo has a beta of 0.55 and a current dividend yield of 3.17%.
Lamb Weston Holdings, Inc. is a leading global manufacturer, marketer and distributor of value-added frozen potato products, particularly French fries, and provides a range of appetizers. LW, along with its joint venture allies, is the top frozen potato products supplier in North America, while it also operates internationally, with a robust and growing presence in emerging markets.
Lamb Weston’s expected earnings growth rate for the current year is 24.8%. The Zacks Consensus Estimate for the current-year earnings has improved 12.1% over the past 60 days. LW currently has a Zacks Rank #2. Lamb Weston has a beta of 0.55 and a current dividend yield of 1.26%.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Xcel Energy Inc. (XEL) : Free Stock Analysis Report
PepsiCo, Inc. (PEP) : Free Stock Analysis Report
Consolidated Water Co. Ltd. (CWCO) : Free Stock Analysis Report
Lamb Weston (LW) : Free Stock Analysis Report
Vistra Corp. (VST) : Free Stock Analysis Report
