5 Stocks to Buy as Fed Continues to Grapple With Inflation
Stocks retreated last week following a solid rally after the Fed kept its interest rates unchanged for the first time after 10 straight hikes. This is because investors are still unsure about the economy’s health and the Fed’s next course of action.
Although inflation has shown signs of easing, it’s still at multi-year highs and the Fed’s fight to bring down inflation is far from over. This was also indicated by Fed Chair Jerome Powell during his Congressional testimony last week. Hence markets are likely to remain volatile for longer than expected. Given this situation, it would be wise to invest in defensive stocks like utilities with a favorable Zacks Rank that are likely to strengthen one’s portfolio.
Market Volatility Continues
All three major indexes snapped their multiweek winning streaks as market participants remain concerned about the Fed’s next move. The Dow ended 1.7% lower, ending its three-week winning streak. The S&P 500 closed 1.4% down after recording five straight weeks of gains. The Nasdaq also finished the week 1.4% down, snapping its eight-week winning streak.
Understandably, stocks are scurrying for direction as investors are trying to gauge Fed’s next move with interest rate hikes. Inflation has eased lately, with both the consumer price and producer price inflation declining significantly in May.
The consumer price index (CPI) increased 4% in May, beating expectations of a rise of 4.1%. This was also significantly lower than April’s increase of 4.9%, the Bureau of Labor Statistics reported.
Also, the producer price index (PPI) decreased 0.3% in May, following a 0.2% increase in April. The PPI has now declined in three of the past five months, indicating that the Fed’s aggressive interest rate hike stance has helped in bringing down inflation.
This prompted the Fed to leave interest rates unchanged for the first time after 10 consecutive hikes totaling 500 basis points that have now taken the benchmark interest rate to the range of 5-5.25%.
However, Powell has also suggested that the Fed is still not done with its interest rate tightening cycle, as inflation is still elevated and far above its target of 2%. Powell suggested that at least two more interest rate hikes of 25 basis points each would be required by the end of this year.
This has raised fresh concerns among investors that the economy might slow further, which unsettled markets last week.
Considering the current circumstances, investing in utility stocks could be a prudent choice. The utilities sector is known for its stability and maturity, given that demand for these essential services is frequently resilient to fluctuations in the economic cycle. These companies offer vital services such as telecommunications, energy, gas, and water, which are consistently in demand.
Thus, incorporating utility companies into a portfolio often enhances its resilience during periods of market volatility. The utilities sector is known for its stability and transparency regarding its financial flows and profitability. These attributes can be advantageous for investors seeking a reliable and consistent performance within their portfolio, particularly in turbulent market conditions.
Moreover, the majority of utilities are low-beta stocks (beta > 0 but 1). The best course of action thus would be to invest in low-beta equities with a high dividend yield and a favorable Zacks Rank.
Our Choices
We have narrowed our search to four low-beta utility stocks that are regular dividend payers. These stocks have seen positive earnings estimate revisions within the last 60 days. Each of our picks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
NiSource Inc. NI together with its subsidiaries, provides natural gas, electricity and other products and services in the United States. NI’s operating subsidiaries deliver energy to roughly 3.7 million customers in six states — Ohio, Pennsylvania, Virginia, Kentucky, Maryland and Indiana. NiSource has one of the nation’s largest natural gas distribution networks as measured by a number of customers.
NiSource has an expected earnings growth rate of 8.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.9% over the last 60 days. NI presently has a Zacks Rank #2. NiSource has a beta of 0.48 and a current dividend yield of 3.74%.
Spire Inc. SR is a natural gas company efficiently serving more than 1.7 million customers in the United States. SR continues to expand business organically by making systematic investments to expand infrastructure and advance through innovation. More than 90% of Spire’s profits come from regulated operations, which provide a clear idea about future earnings.
Spire has an expected earnings growth rate of 10.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.2% over the last 60 days. SR presently has a Zacks Rank #2. Spire has a beta of 0.49 and a current dividend yield of 4.59%.
PPL Corporation PPL serves more than 3.5 million utility customers in the United States. PPL primarily generates electricity from power plants in the Northeast, Northwest and Southeast; markets wholesale or retail energy chiefly in the Northeast and Northwest ; delivers electricity to customers in Pennsylvania, Kentucky, Virginia, Tennessee; and supplies natural gas in Kentucky.
PPL Corporation has an expected earnings growth rate of 12.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 60 days. PPL presently has a Zacks Rank #2. PPL Corporation has a beta of 0.78 and a current dividend yield of 3.64%.
Atmos Energy Corporation ATO, along with its subsidiaries, is engaged in regulated natural gas distribution and storage business. ATO serves nearly 3.4 million customers in more than 1,400 communities in eight states, from the Blue Ridge Mountains in the East to the Rocky Mountains in the West. Atmos Energyoperates more than 72,000 miles of transmission and distribution lines as well as 5,700 miles of interstate pipelines.
Atmos Energy has an expected earnings growth rate of 7.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the last 60 days. ATO presently has a Zacks Rank #2. Atmos Energy has a beta of 0.62 and a current dividend yield of 2.58%.
Northwest Natural Holding Company NWN builds and maintains natural gas distribution systems, as well as invests in natural gas pipeline projects through its subsidiaries. NWN serves residential, commercial and industrial customers primarily in the United States, Canada and Service Territory.
Northwest Natural Holding Company has an expected earnings growth rate of 6.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the last 60 days. NWN presently has a Zacks Rank #2. Northwest Natural Holding Company has a beta of 0.59 and a current dividend yield of 4.61%.
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PPL Corporation (PPL) : Free Stock Analysis Report
NiSource, Inc (NI) : Free Stock Analysis Report
Atmos Energy Corporation (ATO) : Free Stock Analysis Report
Northwest Natural Gas Company (NWN) : Free Stock Analysis Report
Spire Inc. (SR) : Free Stock Analysis Report
