Play Safe as Market Volatility Climbs on Rate Hike: 5 Picks

U.S. stocks suffered losses for yet another week that ended Sep 23 as an increase in interest rates heightened fears of a recession. All the three major benchmarks tumbled on Friday, with the Dow closing below the coveted 30,000-mark for the first time since Jun 17. The blue-chip index was flirting with the bear market territory and had dropped 4% for the week, while the broader S&P 500 and tech-heavy Nasdaq slipped 4.6% and 5.1%, respectively, per the Dow Jones Market Data.

In fact, the major indexes have now registered their fifth negative week out of the last six-week period. On the other hand, Wall Street’s fear gauge touched its highest levels in months. In the last trading session, the Cboe Volatility Index (VIX) soared above 30 for the first time since Jun 21, indicating that wild intraday gyrations are here to stay. After all, VIX has been known for tracking implied volatility in the upcoming 30-day trading period.

Nonetheless, fears that Fed’s inflation fight may lead to a possible recession in the near future were primarily responsible for such a brutal bout of selling in recent times. This is because Fed’s aggressive tightening measures to tame high inflation may significantly hamper consumer outlays, increase the cost of borrowing and hold up economic growth.

The central bank, recently, increased its benchmark interest rates by 75 basis points for the third straight time to the 3-3.25% range, the highest federal funds rate since early 2008. The Fed has further vowed to hike interest rates to drag down inflation to its target of 2% at best by 2025. Talking about inflation, gas prices have dipped. However, prices of food, housing, rent and vehicles have continued to jack up with little relief in sight (Read More: Big Fed Rate Hike a Boon for These 5 Bank Stocks).

From an investment perspective though, investors shouldn’t completely shun equities! Instead, they should invest in risk-adjusted stocks like PepsiCo PEP, Lancaster Colony LANC, Chesapeake Utilities CPK, NextEra Energy NEE and Otter Tail OTTR for steady returns.

Firstly, these stocks have a low-beta (ranges from 0 to 1) that makes them inherently less volatile than the markets they trade in. Secondly, such stocks are dividend payers indicating a better-quality business, which helps them stand market vagaries. To top it off, the stocks are non-cyclical in nature or, in other words, whose activities aren’t allied to the broader market, making them immune to any volatility. Such stocks undoubtedly come from the consumer staples and utility sectors. These stocks also boast a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PepsiCo is one of the leading global food and beverage companies. The company has a beta of 0.55 and a Zacks Rank #2. PEP has a dividend yield of 2.73%. The Zacks Consensus Estimate for its current-year earnings has moved up 0.2% over the past 60 days. The company’s expected earnings growth rate for the current year is 6.4%.

Lancaster Colony is a manufacturer and marketer of specialty food products for the retail and foodservice markets. The company has a beta of 0.04 and a Zacks Rank #1. LANC has a dividend yield of 2.01%. The Zacks Consensus Estimate for its current-year earnings has moved up 54.4% over the past 60 days. The company’s expected earnings growth rate for the current year is 38.3%.

Chesapeake Utilities is a utility company engaged in natural gas distribution and transmission, propane distribution and marketing, advanced information services and other related businesses. CPK has a beta of 0.58 and a Zacks Rank #2. It has a dividend yield of 1.7%. The Zacks Consensus Estimate for its current-year earnings has moved up 1% over the past 60 days. The company’s expected earnings growth rate for the current year is 6.6%.

NextEra Energy is a public utility holding company engaged in the generation, transmission, distribution and sale of electric energy. NEE has a beta of 0.46 and a Zacks Rank #2. It has a dividend yield of 2.06%. The Zacks Consensus Estimate for its current-year earnings has moved up 1.1% over the past 60 days. The company’s expected earnings growth rate for the current year is 13.3%.

Otter Tail’s primary business is the production, transmission, distribution and sale of electric energy. The company has a beta of 0.43 and a Zacks Rank #1. OTTR has a dividend yield of 2.53%. The Zacks Consensus Estimate for its current-year earnings has moved up 31.8% over the past 60 days. The company’s expected earnings growth rate for the current year is 67.4%.

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NextEra Energy, Inc. (NEE) : Free Stock Analysis Report
 
PepsiCo, Inc. (PEP) : Free Stock Analysis Report
 
Chesapeake Utilities Corporation (CPK) : Free Stock Analysis Report
 
Otter Tail Corporation (OTTR) : Free Stock Analysis Report
 
Lancaster Colony Corporation (LANC) : Free Stock Analysis Report
 
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