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5 Defensive Stocks With the Most Upside as Market Volatility Returns
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Wall Street retreated from its earlier highs to start a tricky September as disappointing economic data rekindled fears of a slowing economy. Although the Federal Reserve has indicated that rate cuts are on the anvil, a slowing manufacturing sector continues to keep investors worried about the economy’s health.
Given this situation, it would be wise to invest in defensive stocks like utilities and consumer staples such as American Water Works Company, Inc. (AWK - Free Report) , NiSource Inc. (NI - Free Report) , Evergy, Inc. (EVRG - Free Report) , Unilever PLC (UL - Free Report) and Flowers Foods, Inc. (FLO - Free Report) .
Market Volatility as Manufacturing Activity Slows
Stocks staged a solid comeback last month after the Aug. 5 bloodbath, which was triggered by fears that the economy was slipping into a recession. The fears were reignited on the first trading day of September after the release of disappointing economic data, which showed that manufacturing activity continued to struggle despite cooling inflation.
The Institute for Supply Management (ISM) said that its manufacturing PMI rose to just 47.2 in August from 46.8 in July. The manufacturing sector accounts for 10.3% of the economy. However, any PMI reading below 50 indicates a contraction in the economy.
The PMI reading has remained below the 50 reading for the fifth straight month. Among the 12 industries that experienced contraction were machinery, textile mills, transportation equipment, and electrical equipment, including appliances and components.
Also, the survey's forward-looking new orders sub-index dropped to 44.6 in August from 47.4 in July.
Difficult September Ahead?
Wall Street suffered its worst day since Aug. 5 following the report. The Dow shed 626.15 points, or 1.5%, to finish at 40,936.93. The S&P 500 slid 2.1% to end at 5,528.93 points, while the Nasdaq declined 3.3% to close at 17,136.30.
The Federal Reserve hiked interest rates by 525 basis points to take it to a 23-year high in the range of 5.25-5.5%. Higher borrowing costs have been slowing orders and output at factories.
Inflation has declined substantially, and the Federal Reserve is finally gearing up to cut interest rates. Market participants are expecting a 25-basis-point rate cut by the Fed in its Sept. 18-19 policy meeting.
However, the Federal Reserve hasn’t said anything about how big the rate cut will be and whether there will be single or multiple rate cuts.
Wall Street will also face seasonal challenges, as September has historically been the worst month on average for the S&P 500 over the past decade. This could keep markets volatile for a longer period.
5 Defensive Stocks to Dodge Market Volatility
Given this situation, it would be wise to invest in defensive stocks like utilities and consumer staples. We have chosen five such stocks that are safe bets during times of market volatility.
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.
American Water Works Company, Inc
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 7.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last 60 days. AWK presently carries a Zacks Rank #2. American Water Works has a beta of 0.7 and a current dividend yield of 2.14%.
Image Source: Zacks Investment Research
NiSource Inc.
NiSource Inc., together with its subsidiaries, provides natural gas, electricity and other products and services in the United States. NI’s operating subsidiaries deliver energy to nearly 4 million customers in six states — Ohio, Pennsylvania, Virginia, Kentucky, Maryland and Indiana.
NiSource has an expected earnings growth rate of 7.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 60 days. NI presently carries a Zacks Rank #2. NiSource has a beta of 0.51 and a current dividend yield of 3.21%.
Image Source: Zacks Investment Research
Evergy, Inc.
Evergy, Inc., through its operating subsidiaries Kansas City Power & Light Company (KCP&L), Evergy Metro, Inc., and Evergy Missouri West, Inc., provides clean, safe and reliable energy to more than 1.7 million customers in Kansas and Missouri. EVRG has 15,600 megawatts (MWs) of owned generating capacity and renewable power purchase agreements.
Evergy has an expected earnings growth rate of 8.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days. EVRG currently carries a Zacks Rank #2. Evergy has a beta of 0.62 and a current dividend yield of 4.35%.
Image Source: Zacks Investment Research
Unilever PLC
Unilever PLC is engaged in the manufacturing of branded and packaged consumer goods, including food, detergents and personal care products. UL also has an interest in specialty chemicals. Unilever sells its products internationally.
Unilever PLC has an expected earnings growth rate of 8.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.9% over the last 60 days. UL currently sports a Zacks Rank #1. Unilever has a beta of 0.48 and a current dividend yield of 2.92%.
Image Source: Zacks Investment Research
Flowers Foods, Inc.
Flowers Foods, Inc. emphasizes on providing high-quality baked items, developing strong brands, making innovations to improve capabilities and undertaking prudent acquisitions. Along with these, FLO strives toward developing technology advanced bakeries.
Flowers Foods has an expected earnings growth rate of 4.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.6% over the last 60 days. FLO currently has a Zacks Rank #2. Flowers Foods has a beta of 0.36 and a current dividend yield of 4.13%.
Image Source: Zacks Investment Research
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5 Defensive Stocks With the Most Upside as Market Volatility Returns
Wall Street retreated from its earlier highs to start a tricky September as disappointing economic data rekindled fears of a slowing economy. Although the Federal Reserve has indicated that rate cuts are on the anvil, a slowing manufacturing sector continues to keep investors worried about the economy’s health.
Given this situation, it would be wise to invest in defensive stocks like utilities and consumer staples such as American Water Works Company, Inc. (AWK - Free Report) , NiSource Inc. (NI - Free Report) , Evergy, Inc. (EVRG - Free Report) , Unilever PLC (UL - Free Report) and Flowers Foods, Inc. (FLO - Free Report) .
Market Volatility as Manufacturing Activity Slows
Stocks staged a solid comeback last month after the Aug. 5 bloodbath, which was triggered by fears that the economy was slipping into a recession. The fears were reignited on the first trading day of September after the release of disappointing economic data, which showed that manufacturing activity continued to struggle despite cooling inflation.
The Institute for Supply Management (ISM) said that its manufacturing PMI rose to just 47.2 in August from 46.8 in July. The manufacturing sector accounts for 10.3% of the economy. However, any PMI reading below 50 indicates a contraction in the economy.
The PMI reading has remained below the 50 reading for the fifth straight month. Among the 12 industries that experienced contraction were machinery, textile mills, transportation equipment, and electrical equipment, including appliances and components.
Also, the survey's forward-looking new orders sub-index dropped to 44.6 in August from 47.4 in July.
Difficult September Ahead?
Wall Street suffered its worst day since Aug. 5 following the report. The Dow shed 626.15 points, or 1.5%, to finish at 40,936.93. The S&P 500 slid 2.1% to end at 5,528.93 points, while the Nasdaq declined 3.3% to close at 17,136.30.
The Federal Reserve hiked interest rates by 525 basis points to take it to a 23-year high in the range of 5.25-5.5%. Higher borrowing costs have been slowing orders and output at factories.
Inflation has declined substantially, and the Federal Reserve is finally gearing up to cut interest rates. Market participants are expecting a 25-basis-point rate cut by the Fed in its Sept. 18-19 policy meeting.
However, the Federal Reserve hasn’t said anything about how big the rate cut will be and whether there will be single or multiple rate cuts.
Wall Street will also face seasonal challenges, as September has historically been the worst month on average for the S&P 500 over the past decade. This could keep markets volatile for a longer period.
5 Defensive Stocks to Dodge Market Volatility
Given this situation, it would be wise to invest in defensive stocks like utilities and consumer staples. We have chosen five such stocks that are safe bets during times of market volatility.
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.
American Water Works Company, Inc
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 7.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last 60 days. AWK presently carries a Zacks Rank #2. American Water Works has a beta of 0.7 and a current dividend yield of 2.14%.
Image Source: Zacks Investment Research
NiSource Inc.
NiSource Inc., together with its subsidiaries, provides natural gas, electricity and other products and services in the United States. NI’s operating subsidiaries deliver energy to nearly 4 million customers in six states — Ohio, Pennsylvania, Virginia, Kentucky, Maryland and Indiana.
NiSource has an expected earnings growth rate of 7.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 60 days. NI presently carries a Zacks Rank #2. NiSource has a beta of 0.51 and a current dividend yield of 3.21%.
Image Source: Zacks Investment Research
Evergy, Inc.
Evergy, Inc., through its operating subsidiaries Kansas City Power & Light Company (KCP&L), Evergy Metro, Inc., and Evergy Missouri West, Inc., provides clean, safe and reliable energy to more than 1.7 million customers in Kansas and Missouri. EVRG has 15,600 megawatts (MWs) of owned generating capacity and renewable power purchase agreements.
Evergy has an expected earnings growth rate of 8.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days. EVRG currently carries a Zacks Rank #2. Evergy has a beta of 0.62 and a current dividend yield of 4.35%.
Image Source: Zacks Investment Research
Unilever PLC
Unilever PLC is engaged in the manufacturing of branded and packaged consumer goods, including food, detergents and personal care products. UL also has an interest in specialty chemicals. Unilever sells its products internationally.
Unilever PLC has an expected earnings growth rate of 8.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.9% over the last 60 days. UL currently sports a Zacks Rank #1. Unilever has a beta of 0.48 and a current dividend yield of 2.92%.
Image Source: Zacks Investment Research
Flowers Foods, Inc.
Flowers Foods, Inc. emphasizes on providing high-quality baked items, developing strong brands, making innovations to improve capabilities and undertaking prudent acquisitions. Along with these, FLO strives toward developing technology advanced bakeries.
Flowers Foods has an expected earnings growth rate of 4.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.6% over the last 60 days. FLO currently has a Zacks Rank #2. Flowers Foods has a beta of 0.36 and a current dividend yield of 4.13%.
Image Source: Zacks Investment Research