We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Market Leaders Rolling Over: Time to Rotate into Defensive Stocks?
Read MoreHide Full Article
Although the stock market has rallied almost non-stop since the start of the year, cracks are beginning to form that indicate a correction may be nearing. Not that I am sounding the alarm for some severe bear market, but rather I would not be surprised to see a garden variety pullback of 5-10% over the next month or so.
One development that is bringing to my attention the possibility of a selloff is that a few market generals are seeing some considerable selling.
Namely, Apple (AAPL - Free Report) , Alphabet (GOOGL - Free Report) , and Tesla (TSLA - Free Report) are seeing some soft action. And though large swaths of the market, as well as the rest of the “Magnificent Seven” continue higher, I expect they may follow soon.
In the chart below we can see each of these stocks are underperforming the broad market and are negative YTD.
Based on this market activity, I think discerning investors would benefit from adding some defensive exposure to their portfolios.
Image Source: TradingView
Healthcare
Two stocks that I have been recommending for the last few weeks are HCA Healthcare (HCA - Free Report) and DaVita (DVA - Free Report) . Both stocks have steadily outperformed the market and should show persistent relative strength in the case of a selloff.
I particularly like healthcare stocks during periods of uncertainty, as the sector often shows low volatility and defensive characteristics.
Both DaVita and HCA Healthcare enjoy Zacks Rank #1 (Strong Buy) ratings and are industry leading companies. HCA Healthcare is the largest investor-owned healthcare provider in the United States, operating a vast network of hospitals and outpatient facilities, while DaVita dominates the kidney dialysis care industry, and further expanded its reach in South America just this week.
Image Source: TradingView
Furthermore, even though the stocks have made impressive gains both stocks still boast very reasonable valuations. With forward earnings multiples of 15.8x and 14.3x, they are both below or in line with their respective 10-year median valuations.
Image Source: Zacks Investment Research
Insurance
The Progressive (PGR - Free Report) is one of the nation’s leading auto insurers, and its stock has been on a tear, considerably outperforming the market. Progressive also has a Zacks Rank #1 (Strong Buy) rating, reflecting strongly upward trending earnings revisions.
Current quarter earnings estimates have increased by 24.5% over the last two months, while FY24 have climbed by 11.2% and FY25 by 8.7%. The insurance industry broadly has benefited from the rise in cost of insurance, and Progressive has been one of the top beneficiaries.
Image Source: TradingView
With strong sales are earnings growth forecasts you might expect PGR to have a premium valuation, however you can buy it now at a very fair price. The Progressive company is trading at a one year forward earnings multiple of 21.5x, and though that may not sound particularly cheap, it is based on EPS projections.
Earnings for the insurance provider are expected to grow 22% annually over the next 3-5 years, meaning PGR has a PEG ratio below 1. Based on the metric that is an appealing valuation.
Image Source: Zacks Investment Research
Bottom Line
At some point the market will experience a selloff, whether its this week, next month or in six months. And while the exact timing of it will always be a challenge, most investors will not regret adding some of these defensive-oriented stocks to their portfolio.
Even better when they are already showing relative strength and have top Zacks Ranks.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Market Leaders Rolling Over: Time to Rotate into Defensive Stocks?
Although the stock market has rallied almost non-stop since the start of the year, cracks are beginning to form that indicate a correction may be nearing. Not that I am sounding the alarm for some severe bear market, but rather I would not be surprised to see a garden variety pullback of 5-10% over the next month or so.
One development that is bringing to my attention the possibility of a selloff is that a few market generals are seeing some considerable selling.
Namely, Apple (AAPL - Free Report) , Alphabet (GOOGL - Free Report) , and Tesla (TSLA - Free Report) are seeing some soft action. And though large swaths of the market, as well as the rest of the “Magnificent Seven” continue higher, I expect they may follow soon.
In the chart below we can see each of these stocks are underperforming the broad market and are negative YTD.
Based on this market activity, I think discerning investors would benefit from adding some defensive exposure to their portfolios.
Image Source: TradingView
Healthcare
Two stocks that I have been recommending for the last few weeks are HCA Healthcare (HCA - Free Report) and DaVita (DVA - Free Report) . Both stocks have steadily outperformed the market and should show persistent relative strength in the case of a selloff.
I particularly like healthcare stocks during periods of uncertainty, as the sector often shows low volatility and defensive characteristics.
Both DaVita and HCA Healthcare enjoy Zacks Rank #1 (Strong Buy) ratings and are industry leading companies. HCA Healthcare is the largest investor-owned healthcare provider in the United States, operating a vast network of hospitals and outpatient facilities, while DaVita dominates the kidney dialysis care industry, and further expanded its reach in South America just this week.
Image Source: TradingView
Furthermore, even though the stocks have made impressive gains both stocks still boast very reasonable valuations. With forward earnings multiples of 15.8x and 14.3x, they are both below or in line with their respective 10-year median valuations.
Image Source: Zacks Investment Research
Insurance
The Progressive (PGR - Free Report) is one of the nation’s leading auto insurers, and its stock has been on a tear, considerably outperforming the market. Progressive also has a Zacks Rank #1 (Strong Buy) rating, reflecting strongly upward trending earnings revisions.
Current quarter earnings estimates have increased by 24.5% over the last two months, while FY24 have climbed by 11.2% and FY25 by 8.7%. The insurance industry broadly has benefited from the rise in cost of insurance, and Progressive has been one of the top beneficiaries.
Image Source: TradingView
With strong sales are earnings growth forecasts you might expect PGR to have a premium valuation, however you can buy it now at a very fair price. The Progressive company is trading at a one year forward earnings multiple of 21.5x, and though that may not sound particularly cheap, it is based on EPS projections.
Earnings for the insurance provider are expected to grow 22% annually over the next 3-5 years, meaning PGR has a PEG ratio below 1. Based on the metric that is an appealing valuation.
Image Source: Zacks Investment Research
Bottom Line
At some point the market will experience a selloff, whether its this week, next month or in six months. And while the exact timing of it will always be a challenge, most investors will not regret adding some of these defensive-oriented stocks to their portfolio.
Even better when they are already showing relative strength and have top Zacks Ranks.