4 Low-Beta Defensive Stocks to Grab on Declining Consumer Sentiment
U.S. consumer sentiment hit rock bottom in early October as concerns grew over the economy’s health. The cost of living has grown at a rapid pace over the past few months as oil prices have surged owing to the ongoing conflict in the Middle East.
Households now fear that inflation could rise further if the conflict continues for a longer period, which could further weigh on the economy. Markets have stayed volatile over the past three months, and another rate hike by the Federal Reserve this year could further dent consumers’ sentiment.
We, thus, recommend buying three defensive stocks from the consumer staples sector, namely, Archer-Daniels-Midland Company ADM, Dole plc DOLE, Diageo plc DEO and The Hershey Company HSY.
Consumer Sentiment Declines Further
The University of Michigan's Consumer Sentiment Index tanked to 46.3 in October from a final reading of 48.1 in the previous month. This was sharply lower than the consensus estimate of a reading of 47.8. Consumer sentiment has now declined for three consecutive months.
The decline in consumer sentiment in October is close to the record low hit in May.
The survey’s measure of consumers’ inflation expectations over the next year rose to 4.7% in October from 4.6% in the previous month. Consumers' five-year, or long-term, inflation expectation climbed to 3.5% in October from 3.4% in September.
The survey's measure of current economic conditions fell to an all-time low of 44.7 in October from 50.9 in the previous month.
The U.S.-Iran war has resulted in a steep rise in oil prices, which has been fueling inflation. As a result, the cost of goods and services has jumped substantially over the past several months. Sentiment remained low in October, especially among lower-income group consumers, who have been finding it difficult to spend, the survey noted.
High inflation has been a major challenge for the Federal Reserve. The central bank hiked interest rates by 25 basis points for the first time in three years in September. However, inflation remains sharply higher than the Fed’s 2% target. The Federal Reserve also hinted at another interest rate hike this year.
Market participants are expecting another quarter-percentage-point rate hike by the Fed in its December policy meeting. Fears of higher borrowing costs are further weighing on consumers’ sentiment, which could keep markets volatile for a longer period.
4 Low-Beta Consumer Staples Stocks With Growth Potential
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 58.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4.4% over the last 60 days. Archer-Daniels-Midland Company has a beta of 0.64 and a current dividend yield of 2.6%. ADM currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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 0.66 and a current dividend yield of 2.59%. DOLE currently carries a Zacks Rank #2 (Buy).
Diageo plc
Diageo plc operates in approximately 180 countries and is involved in producing, distilling, brewing, bottling, packaging, as well as distributing spirits, wine and beer. DEO offers its products under globally recognized flagship brands, such as Smirnoff, Johnnie Walker, Captain Morgan, Baileys, Buchanan’s, J&B, Tanqueray and Guinness.
Diageo has an expected earnings growth rate of 2.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.2% over the last 60 days. Currently, DEO has a Zacks Rank #2. Diageo has a beta of 0.57 and a current dividend yield of 1.75%.
The Hershey Company
The Hershey Company is the largest chocolate manufacturer in North America as well as a global leader in chocolate and non-chocolate confectionery. Additionally, HSY manufactures pantry items like baking ingredients, toppings and beverages; gum and mint refreshment products; snack bites and mixes, as well as spreads.
The Hershey Company’s expected earnings growth rate for the current year is 34.6%. The Zacks Consensus Estimate for the current-year earnings has improved 0.1% over the past 60 days. HSY has a beta of 0.1 and a current dividend yield of 3.57%. The Hershey Company has a Zacks Rank #2.
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Archer Daniels Midland Company (ADM) : Free Stock Analysis Report
Diageo plc (DEO) : Free Stock Analysis Report
Dole PLC (DOLE) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
