Inflation rose further in April as higher tariffs and a surge in energy prices owing to the ongoing Iran war weighed on the economy. The back-to-back jump in inflation in March and April has now posed a major challenge for the Federal Reserve, as hopes of a rate cut anytime soon are fading fast.
The uncertainty over an end to the Iran war has also been denting investors’ sentiment. Also, several Federal Reserve officials in the last meeting were in favor of hiking interest rates.
Given this scenario, we recommend buying four defensive stocks from the utility and consumer staples sectors, namely, Atmos Energy Corporation ATO, CMS Energy Corporation CMS, American States Water Company AWR and Tyson Foods TSN.
These stocks have seen positive earnings estimate revisions in the past 60 days, carry a Zacks Rank #2 (Buy) and are set for solid returns. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Inflation Jumps to Three-Year High
Consumer price index (CPI) rose 0.6% month over month in April after increasing 0.9% in the month earlier, the Bureau of Labor Statistics reported on Tuesday. Year over year, CPI increased 3.8% in April, the highest since May 2023.
Core CPI, which excludes the volatile food and energy prices, rose 0.4% sequentially in April and 2.8% from the year-ago levels. April’s jump was triggered by a 3.8% spike in energy prices, which accounted for a nearly 40% overall jump in inflation.
Energy prices have surged at an alarming pace since the beginning of the Iran conflict. Gasoline prices surged 21.2% in March and rose another 5.4% in April. Food prices also jumped 0.5% in April, with grocery costs climbing 0.7%, the highest since August 2022.
Although a ceasefire is in place, uncertainty over the U.S.-Iran war continues as neither country has agreed to the next round of talks. President Donald Trump and his administration earlier said that the war could end soon, but there is no clear indication.
Also, higher tariffs have seen a jump in commodity prices over the past several months. The Federal Reserve halted interest rate cuts this year after inflation showed signs of surging. The Federal is now faced with a bigger challenge of controlling inflation as its 2% target remains a distant dream. Also, several Federal Reserve officials believe that a rate hike is required to tame inflation. Higher borrowing rates could keep markets volatile for a longer period.
4 Low-Beta Defensive Stocks With Growth Potential
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 Energy operates 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 11.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 60 days. Atmos Energy has a beta of 0.695 and a current dividend yield of 2.20%.
CMS Energy Corporation
CMS Energy Corporation is an energy company. It is the parent holding company of Consumers, an electric and gas utility, and NorthStar Clean Energy, a primarily domestic independent power producer and marketer.
CMS Energy Corporation has an expected earnings growth rate of 7.2% for the current year. The Zacks Consensus Estimate for the current year’s earnings has improved 0.3% over the last 60 days. CMS Energy Corporation has a beta of 0.37 and a current dividend yield of 3.1%.
American States Water Company
American States Water Company, along with its subsidiaries, provides fresh water, wastewater services and electricity to its customers in the United States. AWR principally works through its two major subsidiaries — Golden State Water Company and American States Utility Services.
American States Water Company has an expected earnings growth rate of 10.1% for the current year. The Zacks Consensus Estimate for the current year’s earnings has improved 3.3% over the last 60 days. American States Water Company has a beta of 0.60 and a current dividend yield of 2.61%.
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 0.5%. The Zacks Consensus Estimate for the current year’s earnings has improved 7% over the past 60 days. Tyson Foods has a beta of 0.40 and a current dividend yield of 3%.
Zacks' Research Chief Names "Stock Most Likely to Double"
Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.
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CMS Energy Corporation (CMS): Free Stock Analysis Report
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American States Water Company (AWR): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).