It’s time to get defensive. The Nasdaq is now in a bear market, with investors fleeing the tech sector. That’s down to mounting worries over slowing economic growth.
“Investors should increase portfolio defensiveness given our forecast for heightened risk and fat tails,” Goldman Sachs analyst David Kostin told investors recently. A fat tail is Wall Street code for increased risk.
He continued: “The market path in 2019 will depend on investor perception of the longevity of the current economic expansion.” And right now there are plenty of investors who are forecasting a recession could hit as soon as 2020.
So with that in mind, it’s time to get prepared. Here are some high-quality defensive stocks worth a closer look. Reassuringly, all these stocks have a ‘Strong Buy’ analyst consensus rating according to TipRanks. Here I delve down into just why the Street is so bullish on these 7 defensive stocks right now.
Defensive Stocks to Buy: Waste Management (WM)
Most of the time analysts reiterate their ratings. So if an analyst upgrades their rating, it means something. That’s even more true when there’s a rare double upgrade — i.e. from Sell to Buy. And that’s what has happened just now.
Goldman Sachs analyst Brian Maguire (Track Record & Ratings) has just boosted his rating on Waste Management, Inc. (NYSE:WM) from Sell to Buy. “In short, we believe that Waste offers an alternative from the current economic risks and as a result investors should rotate into the group,” Maguire wrote.
Waste Management is a leading provider of comprehensive waste management services in the U.S. As well as waste disposal, this also includes recycling and providing renewable energy from landfill waste.
True, waste may not be the most exciting industry out there. But as the market grows increasingly precarious, now is the time to take a closer look. Indeed, that’s the take from Maguire. He argues that garbage stocks “should be a core holding in every portfolio.”
As for Waste Management specifically, the company boasts a double whammy of strong management and consistent earnings. In July, the company raised full-year guidance after beating the Street’s earning expectations.
As a result, the Goldman Sachs analyst ramped up his WM price target from $97 to $107. From current levels that indicates compelling upside potential of 22%. Overall, this is a stock with a ‘Strong Buy’ Street consensus and an average analyst price target of $97.50. Interested in Waste Management stock? Get a free WM Stock Research Report.
Defensive Stocks to Buy: Cigna Corporation (CI)
US health insurance stock Cigna Corporation (NYSE:CI) has now closed its whopping $54 billion acquisition of Express Scripts. The result: one of the biggest providers of pharmacy benefits and insurance plans in the U.S.
According to CI, the long-awaited merger will 1) improve healthcare coordination; 2) cut costs; 3) increase access to potential clients; and 4) provide a more complete services offering.
“We believe the highly accretive deal should pay strong long-term returns for shareholders given a more equity-friendly capital structure” says Oppenheimer’s Michael Wiederhorn (Track Record & Ratings).
He points out that the transaction is expected to be double-digit accretive in the first full-year post close. This five-star analyst has a buy rating on the stock with a $254 price target, meaning shares could surge over 40%.
“Since Cigna continues to boast strong fundamentals and now will look to unlock the significant potential of ESRX, we maintain our Outperform rating and would continue to be long-term buyers of the stock” Wiederhorn concludes.
In total 12 out of 13 analysts are bullish on CI right now. Meanwhile the average price target stands at $250 (32% upside potential). Get the CI Stock Research Report.
Defensive Stocks to Buy: CVS Health Corporation (CVS)
Our next defensive stock is another major player in the health care industry. CVS Health Corporation (NYSE:CVS) has just tied up a $70 billion acquisition of Aetna, the third largest health insurance provider in the American markets. The deal was announced in December last year, and finally closed just last month.
Steven Halper (Track Record & Ratings) from Cantor Fitzgerald gives the deal his seal of approval. “We remain enthusiastic on CVS shares as we believe the combination with Aetna should drive meaningful growth, while reducing medical costs and improving the quality of care for members” writes the analyst.
Most encouragingly, he calls CVS shares ‘inexpensive’ (at less than 10x the 2019 adjusted EPS of $7.60). He sets a $96 price target on the stock for 51% upside potential.
Crucially, I wouldn’t let news of a review concern you. The New York Post has just reported that Judge Richard Leon has ordered a review of the CVS-Aetna merger, which could last a few months.
“At its meeting with sell-side analysts last week, CVS noted that it was ready to defend its merger with Aetna if necessary” states Halper. “We are not too worried about the final legal challenge, even if it lasts several months.”
Notably, CVS maintains an analyst consensus of ‘Strong Buy.’ This is based on 14 ‘buy’ ratings against 4 ‘holds.’ The average price target of $95 suggests a 49% upside. Get the CVS Stock Research Report.
Defensive Stocks to Buy: McDonald’s Corporation (MCD)
Shifting away from the health care industry, I recommend McDonald’s Corporation (NYSE:MCD). The fast food franchise company was in the doldrums for a long time, but has made an impressive turnaround in the last three years.
“McDonald’s massive store modernization efforts … will begin to pay off in ’19,” says Morgan Stanley’s John Glass (Track Record & Ratings). He has just upgraded the stock from Hold to Buy, writing “McDonald’s is a key defensive stock during periods of economic slowing.”
As a result, the analyst ramped up his MCD price target on McDonald’s from $173 to $210 (21% upside potential). “McDonald’s provides a stabilizing, defensive counterbalance in a volatile market environment,” Glass said.
Plus MCD has a very valuable attribute for a defensive stock: it pays a high and reliable dividend. The 2.66% yield translates to about $4.64 per share annually. McDonald’s paid its first dividend in 1976, and has increased it every year since. Just recently, it boosted its quarterly dividend from $1.01 to a lucrative $1.16.
In fact, MCD is what you would call a Dividend Aristocrat. This is the name given to an elite group of stocks that have continuously increased the size of dividends for at least 25 years.
From the Street MCD scores a ‘Strong Buy’ consensus with a $194 average price target. Get the MCD Stock Research Report.
Defensive Stocks to Buy: Estee Lauder (EL)
Beauty stock Estee Lauder Companies Inc (NYSE:EL) has received a slew of recent buy ratings from the Street. Analysts are celebrating the company’s high-quality earnings beat and bullish guidance, even with China-related risks priced in.
“We look very favorably upon the Q1 delivery and updated guidance” five-star Oppenheimer analyst Rupesh Parikh (Track Record & Ratings) wrote on October 31. He called the stock one of his favorite names in the consumer-packaged goods space.
Notably, confidence in the stock should now improve. That’s because “EL guidance has built in a moderation of sales growth in China and travel retail, impact of all known tariffs including a planned increase in China, and announced closings of department stores.”
The analyst believes the company’s leading position in the global prestige beauty category, a strong management team, and consistent M&A track record can drive continued market share gain. Indeed, the prestige beauty category specifically has been growing at a faster rate than the lower-end mass products in eight of the past nine years.
Overall, six analysts have published recent Buy ratings on the stock. In the same time, two analysts are staying sidelined. Their average Estee Lauder price target of $150 indicates 19 percent upside potential. Get the EL Stock Research Report.
Defensive Stocks to Buy: Mastercard (MA)
Are you ready for a defensive stock with 100% Street support? In the last three months, no less than 14 analysts have published buy ratings on Mastercard (NYSE:MA).
This credit card giant also scores a price target of $235. With shares currently trading at $186 we are looking at upside potential of 36%.
So what’s keeping the analysts on-side? Piper Jaffray’s Jason Deleeuw describes MasterCard as a “multi-vector” long-term growth story with “contained risks.”
Meanwhile five-star Cantor Fitzgerald analyst Joseph Foresi (Track Record & Ratings) writes: “Our Overweight rating is based on the company’s ability to grow faster than its peers and potential to expand margins.” This is a company with the ability to run the business at 50%+ margins at any time.
Mastercard’s strong business model and expansion opportunities should continue to drive solid performance. Demand remains healthy says Foresi, while newer areas like B2B represent key growth drivers. Right now, B2B represents 11% of volumes growing in the low- to high-teens.
Reflecting this bullish analysis, Foresi gives the stock a $237 price target (27% upside). “We value MasterCard at a premium to the market due to its strong growth” he explains. Get the MA Stock Research Report.
Defensive Stocks to Buy: Boeing (BA)
The stars are aligning for the last of our defensive stocks: Boeing Company (NYSE:BA).
Back in July, news broke that Boeing was in talks to acquire Brazil’s Embraer. On Dec 17, both companies announced a finalized deal, with Boeing acquiring an 80% stake in Embraer’s commercial jet liner division for $4.2 billion.
It’s an important deal. Embraer’s E-Jet family, launched in 1997, fills the same small- to medium-range airliner niche as many of Boeing’s aging 737 models.
The upbeat news continued in Dec 18. Boeing’s board announced a 20% boost to the company’s already generous dividend, making the new payout $2.055. Over the last six years, Boeing’s dividend has increased 325%. The new payout will begin in March 2019. At the same time, the board scrapped the existing $18 billion stock buyback plan — and replaced it with a $20 billion buyback plan.
“BA’s 20% dividend hike topped our 12-15% estimate, and the finalized ERJ commercial JV offers large, value accretive cost/revenue synergies” comments Cowen & Co’s Cai Rumohr (Track Record & Ratings).
“Despite the equity market’s bearish backdrop, BA remains our top pick for its 8.9%E 2019 cash flow yield and peer-high 2.6% dividend yield” he writes.
He has a $445 price target on the stock for 39% upside. This is just above the Street’s average price target of $418 (31% upside). That’s with a Strong Buy consensus of 8 buy ratings vs 2 hold ratings. Get the BA Stock Research Report.
TipRanks.com offers exclusive insights for investors by focusing on the moves of experts: Analysts, Insiders, Bloggers, Hedge Fund Managers and more. See what the experts are saying about your stocks now at TipRanks.com. As of this writing, Harriet Lefton did not hold a position in any of the aforementioned securities.
