The Federal Reserve hiked interest rates on Wednesday at the end of its two-day policy meeting. The move was widely anticipated, but stocks tumbled after the announcement as concerns about the economy’s health continue to weigh on consumer sentiment.
Inflation remains stubbornly high, which compelled the central bank to finally hike rates, and consumers fear the situation could worsen if tensions in the Middle East continue, pushing oil prices higher.
Given this situation, it would be wise to invest in defensive stocks from the consumer staples, utilities and healthcare sectors. Four such stocks are: MGE Energy, Inc. MGEE, Archer-Daniels-Midland Company ADM, Dole plc DOLE and Quest Diagnostics Incorporated DGX.
Fed Hikes Interest Rates
The Federal Reserve hiked interest rates by a quarter percentage point on Wednesday at the end of its two-day FOMC meeting, taking its target range to 3.75% to 4%. The central bank’s Federal Open Market Committee voted 12-0 to hike interest rates.
This was also the first rate hike by the central bank in more than three years. Stocks fell following the announcement, with major indexes ending in the red for the day. Consumers’ confidence has largely stayed low over the past few weeks on fears of an economic slowdown. Also, investors have been rotating out of riskier assets and taking refuge in other defensive areas of the markets.
Inflation has remained elevated for several months, as a surge in oil prices triggered by the U.S.-Iran war and higher tariffs on several countries imposed by President Donald Trump have resulted in higher prices for goods and services.
The consumer price index (CPI) rose 0.4% month over month in August. The annual CPI rate came in at 3.4%, which remains sharply higher than the Federal Reserve’s 2% target. Core CPI, which strips out the volatile food and energy, rose 0.3% month over month in August, taking the annual rate to 2.4%.
The Federal Reserve, at the end of the meeting, also hinted at another rate hike by the end of this year. This could further make borrowing costs higher, creating pressure on consumers.
4 Defensive Stocks With Upside
MGE Energy
MGE Energy, Inc. is a public utility holding company. MGEE’s principal subsidiary, MGE, generates and distributes electricity to more than 128,000 customers in Dane County, Wisconsin (250 square miles) and purchases, transports and distributes natural gas to nearly 123,000 customers in seven south-central and western Wisconsin counties (1,375 square miles).
MGE Energy has an expected earnings growth rate of 7.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days. MGE Energy has a beta of 0.70 and a current dividend yield of 2.70%. MGEE currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Archer-Daniels-Midland Company
Archer-Daniels-Midland Company is one of the leading producers of food and beverage ingredients as well as goods made from various agricultural products. ADM processes oilseeds, corn, wheat, cocoa and other feedstuffs. It also engages in the manufacturing, sale, and distribution of products like natural flavor ingredients, flavor systems, natural colors, proteins, emulsifiers, soluble fiber, polyols, hydrocolloids, natural health and nutrition products, as well as other specialty food and feed ingredients.
Archer-Daniels-Midland Company has an expected earnings growth rate of 52.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 8.5% over the last 60 days. Archer-Daniels-Midland Company has a beta of 0.62 and a current dividend yield of 2.40%. ADM currently sports a Zacks Rank #1.
Dole plc
Dole plc is a producer of fresh bananas and pineapples. DOLE will also have a growing presence in categories such as berries, avocados and organic produce.
Dole’s expected earnings growth rate for the current year is 11.7%. The Zacks Consensus Estimate for current-year earnings has improved 1.5% over the past 60 days. Dole plc has a beta of 0.61 and a current dividend yield of 2.56%. DOLE currently carries a Zacks Rank #2.
Quest Diagnostics
Quest Diagnostics Incorporated provides diagnostic information services to a broad range of customers within its primary channels of physicians, hospitals, patients and consumers. DGX provides services to integrated delivery networks throughout the United States through its Collaborative Lab Solutions (formerly Professional Laboratory Services) offerings. These services help customers build and execute laboratory strategies, improve quality, reduce healthcare costs and focus on core competencies. The company is a key provider of reference testing for approximately half of U.S. hospitals.
Quest Diagnostics’ expected earnings growth rate for the current year is 13.2%. The Zacks Consensus Estimate for current-year earnings has improved 4.1% over the past 60 days. Quest Diagnostics has a beta of 0.55 and a current dividend yield of 1.39%. DGX currently carries a Zacks Rank #2.
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Quest Diagnostics Incorporated (DGX): Free Stock Analysis Report
Archer Daniels Midland Company (ADM): Free Stock Analysis Report
Dole PLC (DOLE): Free Stock Analysis Report
MGE Energy Inc. (MGEE): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).