Chicago, IL – September 23, 2022 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: NextEra Energy Inc. NEE, The Southern Co. SO, PepsiCo Inc. PEP, Corteva Inc. CTVA and McKesson Corp. MCK.
Here are highlights from Thursday’s Analyst Blog:
Bet on These 5 Ultra-Defensive Stocks for the Rest of 2022
On Sep 21, the Fed raised the benchmark interest rate by 75 basis points in the third consecutive FOMC meeting. With this, the Fed Fund rate jumped to the range of 3-3.25% from a mere 0-0.25% in early March. The central bank has hiked the interest rate by 3% so far in 2022.
Such a rigorous rate hike has happened for the first time since 1990, when the central bank recognized the Fed Fund rate as the principal monetary policy tool. This is not the end. What is alarming is that the central bank has projected more toughness for the rest of 2022 and 2023.
Consequently, Wall Street melted on Sep 21, with the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — falling 1.7%, 1.7% and 1.8%, respectively. At this juncture, defensive sectors like utilities, consumer staples and health care will be best bets.
Further, we need to select those stocks from those sectors that have a low beta and good dividend yield in order to counter extreme volatility. Five such stocks with a favorable Zacks Rank are — NextEra Energy Inc., The Southern Co., PepsiCo Inc., Corteva Inc. and McKesson Corp.
Fed Provides a Grim Outlook
The U.S. stock markets have been witnessing extreme volatility in 2022. Inflation has soared to a 40-year high and in order to combat mounting inflation, the Fed has adopted an ultra-hawkish monetary stance. Year to date, the Dow, the S&P 500 and the Nasdaq Composite – have plunged 16.9%, 20.5% and 28.3%, respectively.
A large section of economists and financial experts were expecting that the September FOMC meeting would be the last one for a 75 basis point rate hike. However, the Fed has raised the median of the Fed Fund rate to 4.4% in September from 3.4% in June.
This means, the range of the benchmark lending rate at the end of 2022 will be 4.25-4.5%, indicating 75 basis-point and 50 basis-point interest rate hike in November and December, respectively.
Market participants were expecting a rate cut in 2023, which is out of the question now as the central bank has projected that the median of the benchmark interest rate will reach 4.6% in 2023. This means another 50 basis-point rate hike throughout 2023. The first rate cut is not expected before 2024 as the Fed is expecting inflation to come down to its target rate of 2% in 2025.
Investment analysts have estimated that there exists a 75% probability of the U.S. economy entering a recession either in the last quarter of 2022 or in the first quarter of 2023. The Fed has projected that the U.S. GDP will by a mere 0.2% in 2022 after contracting in the first two quarters. The projection for the unemployment rate has been scaled up to 4.4% by next year from the current projection of 3.7%.
Our Top Picks
We have narrowed our search to five low-beta (beta value > 0 <1) high-yielding defensive stocks that have strong potential for the rest of 2022. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
NextEra Energyis expanding domestic clean energy assets through acquisitions and organic initiatives. NEE has stakes in natural gas pipelines in Texas and gains from an increase in natural gas production.
To enhance flexibility, NextEra Energy completed a few financing agreements to secure funds for acquisition. NEE benefits from declining installation costs and improving renewable technology. It has sufficient liquidity to meet obligations.
NextEra Energy has an expected earnings growth rate of 13.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 30 days. NEE has a current dividend yield of 2% and a beta of 0.46.
The Southern Co.is one of the largest electric utility holding companies in the United States, and the premier energy firm serving the attractive Southeast market. Positioned in a niche industry with high barriers to entry, SO’s less volatile and recession-proof business model presents a unique opportunity to earn high returns.
Southern Co. has gradually increased its customer base, ieveraging the demographics of its operating territories. With good rate-based growth and constructive regulation, SO is expected to generate steady earnings and dividend growth in the coming years.
The Southern Co. has an expected earnings growth rate of 6.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last 30 days. SO has a current dividend yield of 3.5% and a b eta of 0.50.
PepsiCo benefits from the resilience and strength of global beverage and convenient food businesses. PEP expects to benefit by delivering convenience, variety and value proposition to customers through its brands. PepsiCo raised its revenue view for 2022.
PepsiCo has been continuously focused on driving greater efficiency and effectiveness, by driving down costs and plowing back these savings to develop scale and core capabilities. In 2019, PEP delivered in excess of $1 billion in productivity savings, keeping it on track with its goal of generating productivity savings of at least $1 billion annually through 2023.
PepsiCo has an expected earnings growth rate of 6.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 60 days. PEP has a current dividend yield of 2.7% and a beta of 0.55.
Corteva operates in the agriculture business. CTVA operates through two segments, Seed and Crop Protection. Corteva develops and supplies germplasm and traits in corn, soybean and sunflower seed markets. CTVA also supplies products to the agricultural input industry that protects against weeds, insects and other pests, and diseases as well as enhances crop health.
Corteva has an expected earnings growth rate of 20.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last 30 days. CTVA has a current dividend yield of 1% and a beta of 0.68.
McKesson provides pharmaceuticals and medical supplies in the United States and internationally. The strong fiscal first-quarter show by three of the four segments of MCK is encouraging. A strong earnings outlook for fiscal 2023 instills optimism.
Strong adjusted operating profit growth across the key segments of MCK is encouraging. A strong position in the Distribution market continues to favor the stock. McKesson played a crucial role in the COVID-19 response efforts in the United States and abroad via the distribution of COVID-19 vaccines, ancillary supply kits, and COVID-19 tests.
McKesson has an expected earnings growth rate of 3.1% for the current year (ending March 2023). The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 30 days. MCK has a current dividend yield of 0.60% and a beta of 0.59.
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