4 Safe Stocks to Buy on Hotter-Than-Expected Inflation Data

Wall Street started 2024 on a high, with the Dow and S&P 500 hitting fresh highs. However, the rally came to a sudden halt on Feb 12 as fresh inflation data dented investors’ confidence and dimmed hopes of a rate cut in March.

The Labor Department reported that inflation rose more than expected in January and remained stubbornly high.

The consumer price index (CPI) jumped 0.3% in January on a month-over-month basis, higher than the consensus estimate of 0.2%. On a year-over-year basis, CPI increased 3.1% in January after rising 3.4% in December.

January’s reading was also higher than analysts’ expectations of 2.9% and a lot higher than the Fed’s 2% target.  

Core CPI, which strips out the volatile energy and food costs, rose 0.4% month over month in January and 3.9% from the year-ago levels. The consensus estimate was of a rise of 0.3% month over month and 3.7% year over year.

Higher shelter costs and broader price pressures weighed on CPI. Shelter costs rose 0.6% in January on a month-over-month basis and 6% year over year.

The hotter-than-expected inflation reading dented consumers’ confidence leading to a huge selloff. The Dow and the S&P 500 declined 1.4% each, while the Nasdaq fell 1.8%, following the release of the data.

Cooling inflation has raised hopes that the Federal Reserve could soon start cutting rates, which could be as early as March. However, market participants are now pushing back the timing of the Fed’s first rate cut.

The central bank had earlier hinted at multiple rate cuts this year but said that a March rate cut is unlikely as inflation remains elevated. However, investors are now casting doubts on a May rate cut too.

Markets are pricing in a 35.3% likelihood that the Federal Reserve will cut interest rates by a quarter point, according to the CME FedWatch tool. These expectations have declined by 60% compared to the previous week.

The January CPI data has once again dampened investors' spirits, prompting them to assess the Federal Reserve's potential future actions on interest rates.

Increasing inflation can lead to market volatility in the coming days, and this may persist for an extended period.

Our Choices

Given this situation, investing in stocks from the utility sector, such as Duke Energy Corporation DUK, Fortis, Inc FTS, American Water Works Company, Inc. AWK and Consolidated Water Co. Ltd. CWCO, seems prudent. These companies are considered defensive due to their non-cyclical nature and their affiliation with the utilities sector. This implies that fluctuations in the market have minimal influence on these businesses.

Also, these stocks belong to the category of low-beta stocks (beta greater than 0 but less than 1). Hence, the recommended approach is to invest in low-beta utility stocks with a favorable Zacks Rank. Each of the stocks has a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Duke Energy Corporation is a diversified energy company with a wide 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 7.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days. DUK has a Zacks Rank #2. Duke Energy has a beta of 0.48.

Fortis, Inc is engaged in the electric and gas utility business. FTS offers regulated utilities comprising electric and gas as well as engages in non-regulated hydroelectric operations. Fortis operates primarily in Canada, the United States and the Caribbean.

Fortis has an expected earnings growth rate of 4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.6% over the last 60 days. FTS carries a Zacks Rank #2. Fortis has a beta of 0.44.

American Water Works Company, Inc. provides essential water services to over 14 million customers in 24 states and has an employee strength of 6,500. AWK also acquires small water service providers to expand its customer base.

American Water Works Company has an expected earnings growth rate of 7.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last 60 days. AWK presently carries a Zacks Rank #2. American Water Works Company has a beta of 0.65.

Consolidated Water Co. Ltd., along with its subsidiaries, is involved in the development and operation of seawater desalination plants and water distribution systems in areas where naturally occurring supplies of potable water are scarce or nonexistent. CWCO also focuses on expanding operations in areas with a large proportion of tourist properties and a growing population.

Consolidated Water Co. has an expected earnings growth rate of 225.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.1% over the last 60 days. CWCO presently has a Zacks Rank #2. Consolidated Water has a beta of 0.12.

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Duke Energy Corporation (DUK) : Free Stock Analysis Report

American Water Works Company, Inc. (AWK) : Free Stock Analysis Report

Consolidated Water Co. Ltd. (CWCO) : Free Stock Analysis Report

Fortis (FTS) : Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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