Buy 4 Low-Beta Defensive Stocks Despite Federal Reserve's Rate Cut

The Federal Reserve cut interest rates by 25 basis points on Wednesday at the end of its two-day policy meeting. This is the second time the central bank has cut interest rates this year. However, stocks pulled back from their earlier highs despite the much-anticipated announcement by the Federal Reserve.

Although the quarter percentage point rate cut was expected to boost markets, comments from Fed Chairman Jerome Powell somewhat dashed hopes of another rate cut in December. Inflation remains high and the rate cut was intended more to support the struggling labor market.

Given this situation, it would be ideal to bank on defensive stocks such as from the utilities and consumer staples sectors to counter the market volatility. These include Atmos Energy Corporation ATO, CenterPoint Energy, Inc. CNP, Duke Energy Corporation DUK,and Service Corporation International SCI. Each of these stocks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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.

Rate Cut Fails to Lift Investors’ Sentiment

The Federal Reserve announced a quarter percentage point rate cut on Wednesday, bringing its benchmark policy rate in the range of 3.75-4%. The rate cut was highly expected, and investors were betting on another 25-basis-point rate cut in December, but Powell’s comments painted a different picture.

Powell said that the Federal officials had strongly different views on how to approach a rate cut in December. Although he didn’t rule out another rate cut, he said that a lot of factors need to be considered before making a decision.

The Fed Chair also said that inflation has declined and is nearing the central bank’s 2% target. However, inflation has been a persistent concern for consumers, given that commodity prices have risen over the past couple of months, thanks to President Donald Trump’s fresh tariffs despite negotiations with several trading partners of the United States.

Moreover, a weakening labor market, with fewer job additions, has raised concerns over the economy slipping into a recession. Wednesday’s interest rate cut was aimed more toward supporting the shrinking jobs market than inflation.

Also, the ongoing government shutdown has now started worrying investors as they remain deprived of economic data to get a clearer picture of the economy. These uncertainties could keep markets volatile for a longer period.

4 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 3.3 million customers in more than 1,400 communities across eight states from the Blue Ridge Mountains in the East to the Rocky Mountains in the West. Atmos Energyoperates more than 73,000 miles of transmission and distribution lines as well as 5,700 miles of interstate pipelines.

Atmos Energy has an expected earnings growth rate of 8.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days. ATO has a beta of 0.74 and a current dividend yield of 1.99%.

CenterPoint Energy, Inc.

CenterPoint Energy, Inc. is a domestic energy delivery company that provides electric transmission & distribution, natural gas distribution and competitive natural gas sales and services operations. CNP maintains the wires, poles and electric infrastructure serving more than 2.5 million metered customers in the greater Houston area and southwestern Indiana.

CenterPoint Energy has an expected earnings growth rate of 8.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 60 days. CNP currently has a Zacks Rank #2. CenterPoint Energy has a beta of 0.57 and a current dividend yield of 2.23%.

Duke Energy Corporation

Duke Energy Corporation is a diversified energy company with a broad portfolio of domestic and international, natural gas and electric and regulated and unregulated businesses that supply, deliver and process energy in North America and selected international markets. DUK primarily operates through three business segments — Electric Utilities and Infrastructure, Gas Utilities and Infrastructure, and Commercial Renewables.

Duke Energy Corporation has an expected earnings growth rate of 7.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 60 days. DUK has a Zacks Rank #2. Duke Energy has a beta of 0.44 and a current dividend yield of 3.39%.

Service Corporation International

Service Corporation International has been strengthening its funeral and cemetery businesses for a while now. With a vast repertoire of funeral services and cemetery operations, SCI remains well-positioned to take advantage of the aging Baby Boomer generation.

Service Corporation International has an expected earnings growth rate of 8.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the last 60 days. SCI has a Zacks Rank #2. Service Corporation International has a beta of 0.89 and a current dividend yield of 1.58%.

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

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