5 Low-Beta Defensive Stocks to Sail Through Ongoing Market Volatility

Inflation continues to pose a challenge for the Federal Reserve in implementing interest rate cuts. The latest economic data shows inflation rose both in October and November and drifted from the Federal Reserve’s 2% target.

Although inflation has eased over the past year, the central bank still isn’t confident about loosening its near-term monetary policy. Meanwhile, personal income rose but at a slower pace than expected, a hint that consumers are cautious amid a tightening labor market. Also, markets have been volatile since the turn of the year.

Given this situation, investors may want to focus on low-beta, defensive stocks — especially from the utility and consumer staples sector — to help cushion against market swings. These companies are: Ameren Corporation AEE, Fortis, Inc. FTS, ONE Gas, Inc. OGS, Hormel Foods Corporation HRL and J&J Snack Foods Corp. JJSF. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank 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.

Inflation Remains a Challenge

The Commerce Department said that the personal consumption expenditure (PCE) index, a key measure the Fed uses as its forecasting tool, rose 2.8% year over year in November. Although the reading came in line with the consensus estimate, inflation drifted further from the Federal Reserve’s 2% target.

Core PCE, which excludes the volatile food and energy prices, also rose 2.8% in November. On a month-over-month basis, both PCE and core PCE rose 0.2% in November.

The report, which was delayed due to the government shutdown, also showed that inflation rose 2.7% in October from the year-ago level. Core PCE also rose at an equal pace in October. Month over month, PCE increased 0.2% in October.

The sudden jump in inflation in October and November comes ahead of the Federal Reserve’s first policy meeting of the year, scheduled from Jan. 27 to Jan.28. The Fed is unlikely to cut interest rates after the meeting. The Federal Reserve had earlier hinted at a single 25-basis-point rate cut this year.

Market participants were hopeful that the Fed could go for more rate cuts after inflation showed signs of easing. However, the concerns have returned. Also, personal income rose 0.1% in October and 0.3% in November. The November figures were slightly below analysts’ expectations of a rise of 0.4%.

Moreover, a shrinking labor market over the past two quarters has also raised fears of a weakening economy. Markets have remained volatile for most of January, and the ongoing uncertainty could see this scenario continue for a longer period.

5 Low-Beta Defensive Stocks With Upside

Ameren

Ameren is a utility company that generates and distributes electricity and natural gas to residential, commercial, industrial and wholesale end markets in Missouri and Illinois. AEE serves nearly 2.4 million electric and more than 900,000 natural gas customers.

Ameren’s expected earnings growth rate for the current year is 8.2%. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the past 60 days. AEE currently carries a Zacks Rank #2. Ameren has a beta of 0.58 and a current dividend yield of 2.78%.

Fortis

Fortis 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 4.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last 60 days. FTS currently carries a Zacks Rank #2. Fortis has a beta of 0.50 and a current dividend yield of 3.46%.

ONE Gas

ONE Gas 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 11.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the last 60 days. OGS has a Zacks Rank #2. The company has a beta of 0.81 and a current dividend yield of 3.47%.

Hormel Foods

Hormel Foods is a leading manufacturer and marketer of various meat and food products in the U.S. and international markets. 

Hormel Foods has an expected earnings growth rate of 6.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4.3% over the past 60 days. HRL has a Zacks Rank #2. Hormel Foods has a beta of 0.33 and a current dividend yield of 4.76%.

J&J Snack Foods

J&J Snack Foods is an American manufacturer, marketer and distributor of branded niche snack foods and frozen beverages for the food service and retail supermarket industries. Manufactured and distributed nationwide, JJSF’s principal products include SUPERPRETZEL, BAVARIAN BAKERY and other soft pretzels, ICEE and SLUSH PUPPIE frozen beverages, LUIGI'S, MINUTE MAID frozen juice bars and ices, WHOLE FRUIT sorbet and frozen fruit bars.

J&J Snack Foods’ expected earnings growth rate for the current year is 4.5%. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the past 60 days. JJSF currently carries a Zacks Rank #2. J&J Snack Foodshas a beta of 0.34 and a current dividend yield of 3.43%.

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

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