Geopolitical tensions escalated over the weekend, as the United States and Iran carried out missile strikes on each other. Within hours, energy prices surged as fears grew that the conflict could escalate further.
A surge in global oil prices after the initial U.S.-Iran conflict in late February pushed inflation higher, with the Federal Reserve contemplating a rate hike by the end of this year. The Wall Street rally has time and again been interrupted by volatility this year, as fears of a rate hike, triggered by high inflation, global tensions and the recent tech sell-off, have been denting investors’ confidence.
Given this scenario, we recommend buying four defensive stocks from the utility and consumer staples sectors, namely, FirstEnergy Corp. FE, Ameren Corporation AEE, The Coca-Cola Company KO and The New York Times Company NYT.
These stocks are also 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.
Geopolitical Tensions Escalate Again
The United States and Iran fired a barrage of missiles at each other in the Middle East as tensions escalated over the weekend. The renewed tensions come after President Donald Trump last week said that he is no longer interested in negotiations.
Oil prices jumped more than 3% over the weekend following the attacks, as fears grew that the Strait of Hormuz could again be blocked, which could disrupt oil supply from the Middle East.
Energy prices had eased substantially over the past month after the United States and Iran signed a temporary memorandum of understanding in mid-June. Oil prices had surged nearly 40% after the war began in late February.
The surge saw inflation jump unexpectedly since then. The Consumer Price Index, an important gauge for measuring the prices of goods and services across the economy, rose 0.5% month over month in May after jumping 0.6% in April, and 4.2% from the year-ago levels.
This has made the Federal Reserve’s job difficult. However, the central bank left interest rates unchanged in its last meeting in the current range of 3.5-3.75%. The minutes from the Federal Reserve’s latest FOMC meeting show that officials are still divided over an interest rate hike, as some believe that inflation could ease after the hostilities ended with the signing of the memorandum of understanding.
However, the Federal Reserve could once again contemplate a rate hike if inflation remains high following the renewed tensions in the Middle East.
Markets have already been volatile over the past month due to a massive tech sell-off, which is being triggered by concerns over the sustainability of AI-related stocks. This has been denting investors’ confidence and could keep markets volatile for a longer period.
4 Defensive Stocks With Growth Potential
FirstEnergy Corp
FirstEnergy Corp. is a diversified energy company. Through its subsidiaries and affiliates, FE engages in the transmission, distribution and generation of electricity.
FirstEnergy Corp’s expected earnings growth rate for the current year is 5.5%. The Zacks Consensus Estimate for current-year earnings improved 0.4% over the past 60 days. FE currently carries a Zacks Rank #2. FirstEnergy Corp has a beta of 0.47 and a current dividend yield of 3.88%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Ameren Corporation
Ameren Corporation 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 Corporation’s expected earnings growth rate for the current year is 7%. The Zacks Consensus Estimate for current-year earnings improved 0.4% over the past 60 days. AEE currently carries a Zacks Rank #2. Ameren Corporation has a beta of 0.47 and a current dividend yield of 2.66%.
The Coca-Cola Company
The Coca-Cola Company’s strong brand equity, marketing, research and innovation help it to garner a market share of more than 40% in the non-alcoholic beverage industry. KO is putting its best foot forward to evolve its business model to become a total beverage company with something for everyone to drink. The Coca-Cola Company has coped with the industry-wide flattening of soda sales over the years by going on a buying spree and making investments in healthier alternatives like coffee, sparkling water and sports drinks.
The Coca-Cola Company has an expected earnings growth rate of 8.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the past 60 days. The Coca-Cola Company has a Zacks Rank #2. KO has a beta of 0.34 and a current dividend yield of 2.54%.
The New York Times Company
The New York Times Company is a leading global media organization focused on delivering high-quality journalism and information. Founded in 1851 and incorporated in 1896, NYT has evolved from a traditional newspaper publisher into a diversified digital-first media company with a strong global subscriber base and a growing portfolio of lifestyle and entertainment products.
The New York Times Companyhas an expected earnings growth rate of 19.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.7% over the last 60 days. NYT has a beta of 0.96 and a current dividend yield of 1.23%.
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Ameren Corporation (AEE): Free Stock Analysis Report
CocaCola Company (The) (KO): Free Stock Analysis Report
FirstEnergy Corporation (FE): Free Stock Analysis Report
The New York Times Company (NYT): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).