U.S. inflation surged past the 4% mark in May, for the first time since early 2023, giving the Federal Reserve enough reason to go for a rate hike in the near term. A surge in energy prices, owing to the Middle East conflict, drove commodity prices higher, which was primarily responsible for the sudden rise in inflation.
A rate hike now appears inevitable. Given this scenario, we recommend buying four defensive stocks from the utility and consumer staples sectors, namely, Duke Energy Corporation DUK,The Coca-Cola Company KO, Arko Corp. ARKO and The New York Times Company NYT.
These stocks have seen positive earnings estimate revisions in the past 60 days, carry a Zacks Rank #1 (Strong Buy) or #2 (Buy) at present, and are set for solid returns. You can see the complete list of today’s Zacks #1 Rank stocks here.
Inflation Continues to Rise
The personal consumption expenditures (PCE) price index rose 4.1% year over year in May, its largest gain since April 2023, the Commerce Department reported on Thursday. This comes after PCE inflation jumped an unrevised 3.8% in April.
Month over month, the PCE index rose 0.4% in May, after climbing 0.7% in April. Oil and other energy prices rose 6.5%. Food prices increased 0.3%. Core PCE, which excludes volatile food and energy, rose 0.3% sequentially in May and 3.4% from the year-ago level. The annual reading for the core PCE was the highest level since October 2023.
Inflation eased last year but started surging from March, primarily due to higher energy costs that raised everything from transportation costs to commodity prices. Oil prices surged as much as 40% in March and April following the war in Iran.
Although oil prices have eased after the United States and Iran signed a preliminary peace deal, the crisis is far from over. The impact of the initial rise in oil prices is still pushing up the prices of commodities. Also, a surge in prices of semiconductors and other tech goods could likely push inflation up.
The Federal Reserve has been contemplating hiking rates as inflation remains far away from its 2% target. Markets have been pricing in a 25-basis-point rate hike by the end of this year. High borrowing costs could further weigh on the economy and keep markets volatile for a longer period.
4 Low-Beta Defensive Stocks With Growth Potential
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 6.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the past 60 days. DUK has a Zacks Rank #2. Duke Energy has a beta of 0.39 and a current dividend yield of 3.37%.
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 0.35 and a current dividend yield of 2.63%.
Arko Corp.
Arko Corp.’s primary asset is a controlling stake in GPM Investments. ARKO, formerly known as Haymaker Acquisition Corp. II, is based in Richmond, VA.
Arko Corp’s expected earnings growth rate for the current year is 93.3%. The Zacks Consensus Estimate for current-year earnings has improved 11.5% over the past 60 days. Arko Corp. has a Zacks Rank #1. ARKO has a beta of 0.98 and a current dividend yield of 1.56%.
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 Company has an expected earnings growth rate of 19.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5% over the last 60 days. NYT has a beta of 0.95 and a current dividend yield of 1.29%.
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CocaCola Company (The) (KO): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).