Fears of inflation surging in the near term have raised fresh concerns over a slowing economy. This saw consumer sentiment decline further in February. Markets have been experiencing volatility since the beginning of the year.
Also, the Federal Reserve left interest rates unchanged in its January policy meeting given the unexpected rise in inflation in the final quarter of 2024. Moreover, President Donald Trump’s plans to impose tariffs on the nation’s business partners have fueled fears of an impending trade war, which are further denting consumers’ sentiment.
Given the ongoing uncertainty, it would be safe to invest in utility and consumer staple stocks, such as Atmos Energy Corporation ATO, American Water Works Company, Inc. AWK, NextEra Energy, Inc. NEE, Tyson Foods TSN and Lancaster Colony Corporation LANC. Each of the stocks belongs to defensive spaces like healthcare and utility and carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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.
Consumer Sentiment Plummets
On Friday, the University of Michigan Surveys of Consumers showed that its Consumer Sentiment Index fell to 67.8 in February from January's final reading of 71.1. Although the reading came in line with the consensus estimate, consumer sentiment hit a seven-month low.
The sharp decline comes as concerns grew over inflation increasing further in the coming months. The consumer’s expectation index of inflation over the next one-year period rose to 4.3% in February from 3.3% in January. This was the highest level since November 2023.
The outlook for inflation over the next five years rose to 3.3% in February from 3.2% in January, the highest level since June 2008.
Multiple Concerns Dent Consumer Sentiment
Consumer sentiment stayed strong in the latter part of 2024 as the Federal Reserve implemented its first rate reduction in four years, following a series of 525 basis point increases since March 2022 to tackle inflation at its highest level in 40 years.
However, the unexpected rise in inflation in the final months of 2024 has made it difficult for the Federal Reserve to return annual inflation to its 2% target. This saw the Fed keeping its benchmark policy rate unchanged in the current range of 4.25-4.5%.
The survey period for the initial consumer sentiment reading ended on Feb. 4, the day Trump temporarily paused his planned 25% tariffs on Canadian and Mexican imports. Although the tariff plans have been halted for a month, consumers are yet to get a clear picture of Trump’s future plans with import duty.
The uncertainty has raised concerns of a trade war in the near term. This could further dent consumer sentiment and keep markets volatile for a longer period. Also, markets are likely to remain volatile until the next rate cut as higher borrowing costs will weigh on a variety of industries.
5 Low-Beta Defensive Stocks With Upside
Atmos Energy Corporation
Atmos Energy Corporation, along with its subsidiaries, is engaged in the 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 5.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 60 days. ATO presently has a Zacks Rank #2. Atmos Energy has a beta of 0.72 and a current dividend yield of 2.44%.
American Water Works Company
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 8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 60 days. AWK presently carries a Zacks Rank #2. American Water Works has a beta of 0.72 and a current dividend yield of 2.50%.
NextEra Energy
NextEra Energy, Inc. is a public utility holding company engaged in the generation, transmission, distribution and sale of electric energy. NEE has both regulated and non-regulated energy-related products and services, with operations in 40 states in the United States and four provinces in Canada. NextEra Energyserves nearly 10 million people through approximately 5 million customer accounts.
NextEra Energy has an expected earnings growth rate of 7.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days. NEE presently carries a Zacks Rank #2. NextEra Energy has a beta of 0.58 and a current dividend yield of 3.02%.
Tyson Foods
Tyson Foods is the biggest U.S. chicken company that produces, distributes and markets chicken, beef, pork, as well as prepared foods. TSN’s products are marketed and sold primarily by sales staff to grocery retailers, grocery wholesalers, meat distributors, military commissaries, industrial food processing companies, chain restaurants, international export companies and domestic distributors.
Tyson Foods’expected earnings growth rate for the current year is 22.6%. The Zacks Consensus Estimate for the current-year earnings has improved 8.3% over the past 60 days. TSN currently carries a Zacks Rank #2. Tyson Foods has a beta of 0.80 and a current dividend yield of 3.45%.
Lancaster Colony Corporation
Lancaster Colony Corporation is a manufacturer and marketer of specialty food products for the retail and foodservice markets. LANC’s wholly-owned subsidiaries, including T. Marzetti Company, produce and market high-quality national and regionally-branded food products throughout the United States for the retail and foodservice markets.
Lancaster Colony Corporation has an expected earnings growth rate of 6.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.3% over the last 60 days. LANC presently has a Zacks Rank #2. Lancaster Colonyhas a beta of 0.35 and a current dividend yield of 2.01%.
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
