Markets Brace for a Bumpy Ride Ahead: 5 Defensive Stocks to Buy

Major bourses like the S&P 500 and the Dow closed in the red for the third consecutive trading session on Sep 8 as investors turned cautious about economic growth in the near term. Major indexes, anyhow, are bracing for gyrations in September. After all, traditionally, September is one of the weakest months for the stock market.

Citing a Barron’s article, since 1928, the broader S&P 500’s return has been a negative 0.99%. Similarly, the Dow has witnessed a loss of 0.8% in September since 1950, according to Stock Trader’s Almanac, citing an Investopedia article.

Traders have begun to sell shares as they remain worried about the outlook for stocks, especially after the solid second-quarter earnings results. Upbeat earnings results have already fueled considerable gains for stocks, which are now considered overvalued and are thus likely to experience a decline in prices, sooner than later.

Doubts have also cropped up about the Fed’s initiative to continue its accommodative monetary policy in the near future to boost the economy. The Fed has already given indication to taper its bond-buying program in the upcoming quarters, a move that could easily discourage investors from placing their bets on risky assets like stocks.

There are other headwinds that could derail the stock market’s northward journey in the near term. President Biden has wished for a hike in corporate taxes. But such a move isn’t encouraging for stocks since it could easily reduce the total S&P 500 listed companies’ earnings per share by 5%, added the Barron’s article.

To top it, concerns about inflation persist. The Fed’s Beige Book mentioned that business houses are currently experiencing an increase in inflation and rising prices of essential goods are most likely to be passed onto consumers in several ways. Notably, bond yields remain elevated amid rising inflation, thereby damaging the allure of, particularly, growth-oriented stocks.

At the same time, the Beige Book cautioned that rising health concerns due to the spread of the delta variant of coronavirus have slowed down economic activity from early July through August, and may even decelerate economic activities in the near future, something that doesn’t bode well for the stock market.

Goldman Sachs, by the way, has trimmed its economic growth target in the United States for this year owing to weaker-than-expected job additions data in August.

Despite such odds, investors should consider investing in safer defensive stocks. After all, these stocks are non-cyclical in nature. This means their performances aren’t dependent on broader market activities. The companies are unperturbed by market gyrations as their products are always in demand. Such stocks are no doubt from sectors such as utility and consumer staples. This is because the requirement for gas, water, and electricity will always stay constant. Similarly, the demand for food, tobacco, and beverages will always be steady.

We have, thus, selected five such stocks that boast a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Otter Tail Corporation’s OTTR primary business is the production, transmission, distribution and sale of electric energy. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 39.2% over the past 60 days. The company’s expected earnings growth rate for the current year is 51.7%.

J & J Snack Foods Corp. JJSF is an American manufacturer, marketer, and distributor of branded niche snack foods and frozen beverages for the food service and retail supermarket industries. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 32.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 183.8%.

Pilgrims Pride Corporation PPC produces, processes, markets, and distributes fresh, frozen, and value-added chicken and pork products to retailers, distributors, and foodservice operators in the United States. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 6.4% over the past 60 days. The company’s expected earnings growth rate for the current year is 112.8%.

MYR Group, Inc. MYRG provides electrical construction services in the United States and Canada. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 14.7% over the past 60 days. The company’s expected earnings growth rate for the current year is 28.2%.

Middlesex Water Company MSEX treats, stores and distributes water for residential, commercial, industrial and fire prevention purposes. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 3.7% over the past 60 days. The company’s expected earnings growth rate for the current year is 4.1%.

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MYR Group, Inc. (MYRG) : Free Stock Analysis Report
 
Pilgrims Pride Corporation (PPC) : Free Stock Analysis Report
 
Otter Tail Corporation (OTTR) : Free Stock Analysis Report
 
J & J Snack Foods Corp. (JJSF) : Free Stock Analysis Report
 
Middlesex Water Company (MSEX) : Free Stock Analysis Report
 
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