U.S. Markets open in 4 hrs 25 mins

6 Defensive Stocks to Buy as Trade Tensions Flare Up

Swarup Gupta
Cohen & Steers (CNS) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

U.S. stocks suffered losses on Jun 15 after trade tensions between Washington and Beijing escalated. President Trump announced tariffs on $50 billion worth of China’s goods. Beijing promised to evaluate the tariff and hit back in equal measure. On Jun 16, China announced that it is levying tariffs on an equal scale on U.S. goods.

With bitterness increasing between the United States and its trading partners, defensive stocks have grabbed investors’ attention. These stocks offer slower but stable growth during periods of uncertainty. Since they also hold out the promise of higher-than-average yields, investing in defensive stocks looks like a prudent option at this point.   

Trump Slaps Tariffs, China Strikes Back

On Jun 15, President Trump announced that the United States was imposing tariffs on $50 billion of China’s imports. Additionally, he said that the United States “will pursue additional tariffs” in case China pursues retaliatory measures. Trump added that 25% tariffs will be imposed on Chinese products that utilize "industrially significant technologies."

China’s commerce ministry retorted that would respond by imposing tariffs on U.S. goods in “equal scale and equal strength.” On Jun 16, China’s finance ministry stated that it will launch tariffs of 25% on $50 billion of U.S. imports. Tariffs on $34 billion of U.S. imports, primarily on agricultural goods, will commence from Jul 6.  

India Retaliates, Defensive Stocks Gain Currency

Meanwhile, India is moving ahead with plans to impose retaliatory tariffs on 30 U.S. products. Per a revised WTO filing, the move is aimed at recouping tariffs worth $241 million imposed by the United States on India’s steel and aluminum in March. These fresh tariffs have been levied on almonds, apples, walnuts as well as metal and chemical products.

Fittingly, defensive sectors, such as real-estate, consumer staples and utilities were the major gainers of Friday’s trading session. These stocks grow at a slower pace than the rest of the economy. However, they are more stable in nature and safer during periods of economic uncertainty.

These also offer dividend yields which are higher than the overall market. Such a characteristic had actually decreased their attractiveness during a year when treasury yields have peaked. But with trade tensions cropping up, they may prove to be popular, especially among risk-averse investors.

Our Choices

Trump’s decision to impose tariffs on Chinese products seems to have sparked off a full-fledged trade war. China has responded in equal measure and no resolution seems to be in sight in the near term. In fact, the trade war could actually expand in scope with countries like India choosing to impose retaliatory tariffs.

Investing in defensive stocks, which offer a safe and stable choice during periods of uncertainty looks like a good option at this point. Further, they carry the promise of above-average dividend yields. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.

PennyMac Mortgage Investment Trust PMT is a real estate investment trust (REIT). The company operates as a specialty finance company that will invest primarily in residential mortgage loans and mortgage-related assets.

PennyMac has a Zacks Rank #1 (Strong Buy). The company has expected earnings growth of 27.3% for the current year. The Zacks Consensus Estimate for the current year has improved 4.4% over the last 60 days. The stock has a dividend yield of 10%.

TerraForm Power, Inc. TERP operates clean power generation assets such as solar, wind, natural gas, geothermal and hydro-electricity.

TerraForm has a Zacks Rank #1. The company’s expected earnings growth for the current year is more than 100%.The Zacks Consensus Estimate for the current year has improved more than 100% over the last 60 days. The stock has a dividend yield of 6.6%.

Medifast, Inc. MED is a leading manufacturer and distributor of clinically proven healthy living products and programs.

Medifast has expected earnings growth of 59.4% for the current year. The Zacks Consensus Estimate for the current year has improved 12.3% over the last 60 days. The stock has a dividend yield of 1.2%.Ithas a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ameren Corporation AEE is a utility company, which generates and distributes electricity and natural gas to residential, commercial, industrial and wholesale end markets in Missouri and Illinois.

Ameren has a Zacks Rank #2 (Buy). The company has expected earnings growth of 7.5% for the current year. The Zacks Consensus Estimate for the current year has improved 0.2% over the last 30 days. The stock has a dividend yield of 3.2%.

Gladstone Land Corporation LAND is an REIT that acquires and leases farmland to corporate and independent farmers.

Southwest Gas Holdings has a Zacks Rank #2. The company has expected earnings growth of 6.1% for the current year. The Zacks Consensus Estimate for the current year has improved 0.9% over the last 30 days. The stock has a dividend yield of 4.2%.

New Media Investment Group Inc. NEWM is an investor, owner and operator of local media assets in the United States.

New Media Investment Group has a Zacks Rank #2. The company has expected earnings growth of 53.7% for the current year The Zacks Consensus Estimate for the current year has improved more than 20.3% over the last 30 days. The stock has a dividend yield of 7.9%.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>


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
 
Ameren Corporation (AEE) : Free Stock Analysis Report
 
TerraForm Power, Inc. (TERP) : Free Stock Analysis Report
 
MEDIFAST INC (MED) : Free Stock Analysis Report
 
New Media Investment Group Inc. (NEWM) : Free Stock Analysis Report
 
PennyMac Mortgage Investment Trust (PMT) : Free Stock Analysis Report
 
Gladstone Land Corporation (LAND) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research