Wall Street is suffering from severe volatility, although October generally remains favorable for investors. The impressive bull run in the first seven months of this year suffered major setbacks since August. Month to date, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — tumbled 3.3%, 4% and 4.4%, respectively.
Last week, both the broad-market benchmark S&P 500 and the tech-heavy Nasdaq Composite entered into correction territory. The inflation rate remained well above the Fed’s 2% target level despite pursuing extremely tough monetary policies and a very high interest rate regime in the past one and a half years.
Volatility continues as the Fed warned of one more rate hike of 25 basis points by the end of this year and a higher interest rate regime for a longer period. The first rate cut is not expected before September 2024 and the inflation rate is unlikely to decline to the central bank’s target rate of 2% before 2026.
Consequently, the yield on the benchmark 10-Year U.S. Treasury Note spiked above 5% last week. This happened for the first time since the Great Recession of 2007. The 10-Year yield is crucial as it reflects investors sentiment on the economy and financial markets.
Moreover, the intensifying geopolitical conflicts in the Middle East between Israel and Hamas may result in a spike in crude oil prices. This will raise the cost of transportation thereby hiking the general price level.
Volatility is likely to continue in the near future as market participants are waiting for the Fed’s FOMC meeting decision on Nov 1. The CME FedWatch tool is currently showing almost 100% probability that the central bank will keep the benchmark lending rate unchanged in the range of 5.25-5.5%. However, market participants are more eagerly awaiting Chairman Jerome Powell’s statement to draw a conclusion about the Fed’s future course of action.
Our Top Picks
At this juncture, we have narrowed our search to five stocks from defensive sectors like utilities, consumer staples and healthcare. These stocks have strong potential for the rest of 2023 and have seen positive earnings estimate revisions in the last 60 days.
Moreover, these companies are regular dividend payers which will act as an income stream during market’s downturn. Each of our picks carries either a Zacks Rank #1 (strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks in the past three months.
Image Source: Zacks Investment Research
New Jersey Resources Corp. (NJR – Free Report) is an energy services holding company that provides safe and reliable natural gas and clean energy services, including transportation, distribution, asset management and home services. NJR operates through four segments: Natural Gas Distribution, Clean Energy Ventures, Energy Services, and Storage and Transportation.
Zacks Rank #1 New Jersey Resources has an expected revenue and earnings growth rate of 3.4% and 4.7%, respectively, for the current year (ending September 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 60 days. NJR has a current dividend yield of 4.13%.
Lamb Weston Holdings Inc. (LW – Free Report) benefits from solid pricing actions to counter input and manufacturing cost inflation. Strategic pricing efforts drove LW’s first-quarter fiscal 2024 net sales, which increased year over year and surpassed the Zacks Consensus Estimate. Management is on track with solid offerings and capacity expansion, enabling the company to meet rising demand conditions for snacks and fries effectively.
LW continues investing in supply-chain, commercial and information technology operations. A solid start to the year and the ongoing demand and pricing scenario prompted LW to raise its fiscal 2024 outlook.
Zacks Rank #1 Lamb Weston has an expected revenue and earnings growth rate of 28.3% and 24.8%, respectively, for the current year (ending May 2024). The Zacks Consensus Estimate for current-year earnings has improved 11% over the last 30 days. LW has a current dividend yield of 1.26%.
McKesson Corp. (MCK – Free Report) is benefitting from a recovery in demand, which is driving volumes. Moreover, the improving price of products is boosting sales. MCK’s distribution business will continue to benefit from a higher volume of specialty products, including an increase in volume from retail national account customers.
Rising demand for extended and primary care will drive MCK’s topline for Medical-Surgical business in fiscal 2024. Moreover, improving demand for healthcare-related technologies and a rise in prescriptions from third-party logistics will be the key factors driving revenues from the Prescription Technology Solutions segment.
Zacks Rank #1 McKesson has an expected revenue and earnings growth rate of 9.9% and 4.9%, respectively, for the current year (ending March 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 30 days. MCK has a current dividend yield of 0.55%.
PepsiCo Inc. (PEP – Free Report) reported robust third-quarter 2023 earnings. The results reflected strength and resilience in its diversified portfolio, modernized supply chain, improved digital capabilities, flexible go-to-market distribution systems and robust consumer demand trends. Resilience and strength in the global beverage and food businesses also aided results.
PEP raised its core EPS guidance for 2023 and reaffirmed its organic revenue growth prediction of 10% for 2023. PEP expects a core EPS of $7.54 for 2023 compared with $7.47 mentioned earlier. This suggests an 11% increase from the core EPS of $6.79 reported in 2022 compared with 10% growth expected earlier.
Zacks Rank #2 PepsiCo has an expected revenue and earnings growth rate of 6.3% and 11.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last 30 days. PEP has a current dividend yield of 3.17%.
The Procter & Gamble Co. (PG – Free Report) has been gaining from robust pricing and a favorable mix, along with strength across segments. PG has been focused on productivity and cost-saving plans to boost margins. This led to the top and bottom-lines beating the consensus mark for the fourth consecutive quarter in the fourth quarter of fiscal 2023.
Consequently, PG has provided an optimistic view for fiscal 2024. PG anticipates year-over-year all-in sales growth of 3-4% for fiscal 2024, in-line with our estimate of 3.6% growth. PG’s continued investment in the business alongside its efforts to offset macro cost headwinds and balance top and bottom-line growth underscores its productivity efforts.
Zacks Rank #2 Procter & Gamble has an expected earnings growth rate of 4% and 8.4%, respectively, for the current year (ending June 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the last 30 days. PG has a current dividend yield of 2.56%.
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