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5 Defensive Stocks to Buy as Consumer Sentiment Dips Again
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Americans who were bullish about the economy till a few weeks ago have suddenly grown concerned as inflation once again increased in January. The confidence level thus has once again taken a hit, as consumers believe that the Federal Reserve could delay the first rate cut for a longer time.
The University of Michigan’s consumer sentiment survey came up with a reading of 76.9 in February, declining unexpectedly from January’s reading of 79. This is the first decline in consumer sentiment in the past three months.
Moreover, the consumers’ expectation index shows that prices will jump at an annual rate of 3% over the next year, implying an increase from 2.9% in January. However, their outlook for costs over the next five to 10 years remains unchanged at 2.9% from the prior month.
Consumer sentiment improved steadily over the past few months but has again been dented as data showed that inflation jumped in January.
Consumer price index (CPI) increased 0.3% month over month in January and 3.1% from the same period a year ago. Also, the core CPI, which excludes the volatile energy and food prices, saw a sequential increase of 0.4% and a year-over-year increase of 3.9% in January.
The unexpected jump in inflation after a sharp decline over the past few months has dimmed hopes of a rate cut by the Federal Reserve in March.
The Federal Reserve had earlier said that the first rate cut in March is unlikely as inflation remains above its 2% target. Investors were expecting the first quarter-percentage-point rate cut in May following that.
However, many now believe that the Federal Reserve could delay the first rate cut till its June FOMC meeting.
Markets are now pricing in a 25% chance that the Federal Reserve will go for the first 25-basis points rate cut in May, according to the CME FedWatch Tool. The probability was more than 70% till a few weeks back.
Higher interest rates for a longer time increase borrowing costs, which doesn’t bode well for the economy.
Our Choices
Given this situation, it would be wise to invest in defensive stocks like utilities, healthcare and consumer staples with a favorable Zacks Rank that are likely to strengthen one’s portfolio. Five such stocks are The Ensign Group, Inc. (ENSG - Free Report) , Cardinal Health, Inc. (CAH - Free Report) , Consolidated Water Co. Ltd. (CWCO - Free Report) , Colgate-Palmolive Company (CL - Free Report) and American Water Works Company, Inc. (AWK - Free Report) .
These firms are considered defensive due to their non-cyclical nature and affiliation with the consumer staples and utilities sectors. This implies that fluctuations in the market have minimal influence on these enterprises.
Also, these stocks 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.
The Ensign Group, Inc. provides healthcare services across the post-acute care continuum and ancillary businesses in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, Oklahoma, Oregon, South Carolina, Texas, Utah, Washington, Wisconsin and Wyoming. As of Dec 31, 2023, ENSG offered skilled nursing, senior living and rehabilitative care services through 297 skilled nursing and senior living facilities.
The Ensign Group has an expected earnings growth rate of 12.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.3% over the past 60 days. ENSG presently has a Zacks Rank #2. ENSG has a beta of 0.95 and a current dividend yield of 0.20%.
Cardinal Health, Inc. is a nationwide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. CAH has two reporting segments — Pharmaceutical and Medical.
Cardinal Health has an expected earnings growth rate of 25.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.7% over the past 60 days. CAH currently carries a Zacks Rank #2. Cardinal Health has a beta of 0.68 and a current dividend yield of 1.77%.
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 225.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 60 days. CWCO presently has a Zacks Rank #2, a beta of 0.9 and a current dividend yield of 1.29%.
Colgate-Palmolive Company’s business strategy closely defines efforts to increase its leadership in key product categories through innovation in core businesses, tracking adjacent categories’ growth and expansion into new markets and channels. Due to the shift of consumer preference to organic and natural ingredients, CL is expanding its Naturals range, including Naturals toothpaste.
Colgate-Palmolive Company has an expected earnings growth rate of 7.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the past 60 days. CL presently has a Zacks Rank #2. Colgate-Palmolive has a beta of 0.42 and a current dividend yield of 2.22%.
American Water Works Company, Inc. provides essential water services to over 14 million customers in 24 states and has an employee strength of 6,500. AWK also acquires small water service providers to expand its customer base.
American Water Works Company has an expected earnings growth rate of 6.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last 60 days. AWK presently carries a Zacks Rank #2. American Water Works has a beta of 0.6 and a current dividend yield of 2.36%.
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5 Defensive Stocks to Buy as Consumer Sentiment Dips Again
Americans who were bullish about the economy till a few weeks ago have suddenly grown concerned as inflation once again increased in January. The confidence level thus has once again taken a hit, as consumers believe that the Federal Reserve could delay the first rate cut for a longer time.
The University of Michigan’s consumer sentiment survey came up with a reading of 76.9 in February, declining unexpectedly from January’s reading of 79. This is the first decline in consumer sentiment in the past three months.
Moreover, the consumers’ expectation index shows that prices will jump at an annual rate of 3% over the next year, implying an increase from 2.9% in January. However, their outlook for costs over the next five to 10 years remains unchanged at 2.9% from the prior month.
Consumer sentiment improved steadily over the past few months but has again been dented as data showed that inflation jumped in January.
Consumer price index (CPI) increased 0.3% month over month in January and 3.1% from the same period a year ago. Also, the core CPI, which excludes the volatile energy and food prices, saw a sequential increase of 0.4% and a year-over-year increase of 3.9% in January.
The unexpected jump in inflation after a sharp decline over the past few months has dimmed hopes of a rate cut by the Federal Reserve in March.
The Federal Reserve had earlier said that the first rate cut in March is unlikely as inflation remains above its 2% target. Investors were expecting the first quarter-percentage-point rate cut in May following that.
However, many now believe that the Federal Reserve could delay the first rate cut till its June FOMC meeting.
Markets are now pricing in a 25% chance that the Federal Reserve will go for the first 25-basis points rate cut in May, according to the CME FedWatch Tool. The probability was more than 70% till a few weeks back.
Higher interest rates for a longer time increase borrowing costs, which doesn’t bode well for the economy.
Our Choices
Given this situation, it would be wise to invest in defensive stocks like utilities, healthcare and consumer staples with a favorable Zacks Rank that are likely to strengthen one’s portfolio. Five such stocks are The Ensign Group, Inc. (ENSG - Free Report) , Cardinal Health, Inc. (CAH - Free Report) , Consolidated Water Co. Ltd. (CWCO - Free Report) , Colgate-Palmolive Company (CL - Free Report) and American Water Works Company, Inc. (AWK - Free Report) .
These firms are considered defensive due to their non-cyclical nature and affiliation with the consumer staples and utilities sectors. This implies that fluctuations in the market have minimal influence on these enterprises.
Also, these stocks 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.
The Ensign Group, Inc. provides healthcare services across the post-acute care continuum and ancillary businesses in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, Oklahoma, Oregon, South Carolina, Texas, Utah, Washington, Wisconsin and Wyoming. As of Dec 31, 2023, ENSG offered skilled nursing, senior living and rehabilitative care services through 297 skilled nursing and senior living facilities.
The Ensign Group has an expected earnings growth rate of 12.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.3% over the past 60 days. ENSG presently has a Zacks Rank #2. ENSG has a beta of 0.95 and a current dividend yield of 0.20%.
Cardinal Health, Inc. is a nationwide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. CAH has two reporting segments — Pharmaceutical and Medical.
Cardinal Health has an expected earnings growth rate of 25.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.7% over the past 60 days. CAH currently carries a Zacks Rank #2. Cardinal Health has a beta of 0.68 and a current dividend yield of 1.77%.
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 225.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 60 days. CWCO presently has a Zacks Rank #2, a beta of 0.9 and a current dividend yield of 1.29%.
Colgate-Palmolive Company’s business strategy closely defines efforts to increase its leadership in key product categories through innovation in core businesses, tracking adjacent categories’ growth and expansion into new markets and channels. Due to the shift of consumer preference to organic and natural ingredients, CL is expanding its Naturals range, including Naturals toothpaste.
Colgate-Palmolive Company has an expected earnings growth rate of 7.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the past 60 days. CL presently has a Zacks Rank #2. Colgate-Palmolive has a beta of 0.42 and a current dividend yield of 2.22%.
American Water Works Company, Inc. provides essential water services to over 14 million customers in 24 states and has an employee strength of 6,500. AWK also acquires small water service providers to expand its customer base.
American Water Works Company has an expected earnings growth rate of 6.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last 60 days. AWK presently carries a Zacks Rank #2. American Water Works has a beta of 0.6 and a current dividend yield of 2.36%.