The stock market is currently navigating stormy waters, characterized by significant volatility and fluctuations that have left many investors cautious. Recent economic indicators have sparked worries about persistent inflation, with metrics suggesting that inflation may remain stubbornly above the Federal Reserve’s target of 2%. This backdrop has contributed to a notable increase in Treasury yields, while a widespread sell-off in technology stocks has further compounded the challenges. The Nasdaq Composite, which leans heavily on tech stocks, has experienced the steepest declines, falling nearly 1% within the week. In comparison, broader indices such as the S&P 500 and the Dow Jones Industrial Average have seen lesser declines of approximately 0.4% and 0.2%, respectively. Given this turbulent environment, many investors are in search of stable, reliable stocks that can provide a shield against volatility.
In response to the market’s erratic behavior, Wolfe Research has identified a set of defensive stocks that stand out based on criteria designed to enhance investor protection. These criteria include a high dividend yield of at least 3%, a low payout ratio of under 90%, and limited leverage, specifically less than three times earnings. This screening process has surfaced several companies that may offer a modicum of safety during turbulent times.
Ford Motor Company is among the noteworthy names that emerged from the defensive stock screening. Currently boasting an impressive dividend yield of 6% and a low payout ratio of 35%, Ford represents a potentially lucrative investment. Despite a decline of over 13% in 2024, the stock rebounded last Friday, attributed to the automaker’s announcement of its best annual new vehicle sales in the U.S. since 2019. Notably, while the company has garnered a majority of hold ratings from analysts – with 15 out of 26 providing such assessments – the average 12-month price target of around $11 suggests a potential upside of about 18% based on recent closing prices. This mixed outlook highlights Ford’s resilience, even as analysts cautiously evaluate its future.
Shifting focus to the healthcare sector, Medtronic stands out as another potential defensive investment. This medical equipment manufacturer offers a dividend yield of 4%, with a payout ratio of 48% and a net leverage ratio of 2 times earnings. Analysts appear optimistic, with a near-even distribution of ratings: 16 out of 33 analysts recommend a strong buy or buy, while 15 suggest holding. Despite a 3% dip in the stock price over the past year, the sentiment surrounding Medtronic is largely positive, further bolstered by market dynamics—particularly a recent slowdown in a competing heart device from Johnson & Johnson, which contributed to Medtronic’s gain of over 3% on Wednesday. The stock has shown strong performance relative to the broader market, climbing over 7% in the last six months.
Finally, Coca-Cola shines as a long-standing player with a track record of resilience. The beverage giant has seen its stock advance nearly 9% in 2024, receiving an upgrade from TD Cowen, which highlighted the company’s superior execution in the marketplace. Coca-Cola enjoys robust analyst support, as evidenced by 20 out of 27 analysts recommending a strong buy or buy rating, indicating strong confidence in the stock’s future trajectory. The average 12-month price target is approximately $73, indicating a potential upside of around 19%.
In the midst of current market fluctuations, defensive stocks like Ford, Medtronic, and Coca-Cola offer promising opportunities for investors looking to mitigate risk. With high dividend yields, solid payout ratios, and strong analyst support, these companies provide a semblance of stability in an unpredictable environment. As the market continues to grapple with inflation concerns and sector sell-offs, investors would do well to consider these defensive options as a means of weathering the storm.