4 Low-Beta Defensive Stocks to Bank on as Consumer Sentiment Plummets

Volatility has returned to Wall Street, with major indexes giving up gains over the past couple of months, as uncertainty over the next rate cut and the impact of President Donald Trump’s tariffs continue to dent consumer sentiment.

Consumer sentiment fell in July and inflation expectations rose due to these uncertainties. Given the uncertainty, it may be a wise decision to focus on safe-haven stocks such as utilities and consumer staples. In this regard, Fortis, Inc. FTS, New Jersey Resources Corporation NJR, ONE Gas, Inc. OGS and Diageo plc DEO appear to be attractive options. Each of these stocks 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 stocks are from the low-beta category (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 Falls Further

The University of Michigan's preliminary consumer sentiment index fell to 58.6% in July from a final reading of 61.7 in June, missing analysts’ expectations of a rise to 62. The reading for buying conditions fell 14%, the lowest in a year.

The survey mentioned that households are expecting prices of goods to rise due to higher tariffs, which is denting their sentiment. The short-term inflation expectations worsened, with the projected 12-month inflation outlook rising to 4.9% in July from 4.5% in June.

The five-year inflation outlook also rose to 3.9% in July from 3.4% in the prior month.

Multiple Factors Denting Sentiment

Stocks rallied over the past couple of months, with the Dow, the S&P 500 and the Nasdaq hitting multiple new all-time closing highs, after Trump halted tariffs and the White House initiated trade talks with several countries to reach fair trade deals.

This gave investor sentiment a boost on optimism that the impact of tariffs would not be milder than it was initially believed. However, prices of goods rose substantially after the new tariffs were implemented. Also, the tariff deadline ended on Aug. 7, and consumers are anticipating prices to rise further.

Investors were also expecting a rate cut in July, but the Federal Reserve left interest rates unchanged in its current range of 4.25-4.5%. The Fed has adopted a wait-and-watch stance, as it is also unsure how tariffs will impact inflation. Investors are now anticipating a 25-basis point rate cut in September, but no such indication has been given by the Federal Reserve.

These uncertainties could keep markets volatile for a longer period.

4 Low-Beta Defensive Stocks With Upside

Fortis, Inc.

Fortis, Inc. is engaged in the electric and gas utility business. FTS offers regulated utilities, comprising electric and gas, as well as engages in non-regulated hydroelectric operations. Fortis operates primarily in Canada, the United States and the Caribbean.

Fortis has an expected earnings growth rate of 4.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.2% over the last 60 days. FTS has a Zacks Rank #2. Fortis has a beta of 0.46 and a current dividend yield of 3.51%.

New Jersey Resources Corporation

New Jersey Resources Corporation is an energy services holding company, which, through its subsidiaries, provides safe and reliable natural gas and clean energy services, including transportation, distribution, asset management and home services. NJR operates through four segments: Natural Gas Distribution, Clean Energy Ventures, Energy Services, and Storage and Transportation.

New Jersey Resources has an expected earnings growth rate of 12% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.9% over the last 60 days. NJR presently sports a Zacks Rank #1. New Jersey Resources has a beta of 0.64 and a current dividend yield of 3.83%.

ONE Gas, Inc. 

ONE Gas, Inc. is a 100% regulated natural gas distribution utility. OGS provides natural gas distribution services to more than 2.3 million customers in Oklahoma, Kansas and Texas.  

ONE Gas has an expected earnings growth rate of 10.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the last 60 days. The Zacks Rank #2 company has a beta of 0.82 and a current dividend yield of 3.54%.

Diageo plc

Diageo plc operates in approximately 180 countries and is involved in producing, distilling, brewing, bottling, packaging, as well as distributing spirits, wine and beer. DEO offers its products under globally recognized flagship brands, such as Smirnoff, Johnnie Walker, Captain Morgan, Baileys, Buchanan’s, J&B, Tanqueray and Guinness.

Diageo has an expected earnings growth rate of 3.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.2% over the last 60 days. Currently, DEO has a Zacks Rank #2. Diageo has a beta of 0.53 and a current dividend yield of 2.87%.

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This article originally published on Zacks Investment Research (zacks.com).

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