Recent reports of inflation have caused a stir among investors, leading to a sell-off in the market. The producer and consumer price indexes released this week have shown annualized inflation rates still above 2%, raising concerns for those hoping for a potential decrease in interest rates by the Federal Reserve. This has led to some market pullback, with the S & P 500 slipping by 1% since the beginning of April. However, the index has seen a 9% increase since the start of 2024.
In light of the market uncertainty, investors may consider rotating into more defensively focused stocks to weather the storm. CNBC Pro’s screening tool has identified specific criteria for finding such stocks among the S&P 500. These criteria include a beta under 1, net income compound annual growth rate of 20% or more over the past three years, gross margins of 30% or more, and an upside potential of at least 10% to the average analyst’s price target.
Out of the numerous stocks in the S&P 500, only four meet all of these criteria. ServiceNow and Roper Technologies, both operating in the technology sector, offer investors a defensive option while still providing exposure to the industry. ServiceNow has shown steady performance in line with the Nasdaq Composite, with a consensus price target indicating more than 10% upside potential.
Roper Technologies, although facing some challenges this year, is also seen as a promising defensive stock. Analysts predict a rebound in its performance, with a buy rating and a price target suggesting a rally of more than 10%. The stock also offers a dividend yield of 0.6%.
Apart from technology, TJX, the parent company of T.J. Maxx and HomeGoods, has also made the list of defensive stocks. While lagging behind the market this year, analysts foresee a significant jump in its share price in the next year. The stock comes with a dividend yield of 1.6%.
Another name on the list is Coterra Energy, with analysts predicting nearly 14% upside potential. With a dividend yield of 2.9% and a 9% increase in shares this year, Coterra is seen as a solid choice for investors. UBS’s Josh Silverstein has voiced optimism about the stock, citing its growing oil exposure, strong balance sheet, and shareholder return profile.
In times of market turbulence and uncertainty, defensive stocks play a crucial role in providing stability and potential growth opportunities for investors. While market volatility may spook investors, having a portfolio with defensively focused stocks can help mitigate risks and preserve capital. Consideration of stocks meeting specific criteria, such as low volatility, strong growth rates, and attractive margins, can guide investors towards making informed decisions in navigating through turbulent market conditions.