When every rally attempt fails, the big risk-on day Thursday aside, market veterans know that it is likely that the path of least resistance for the stock market is lower. Thursday’s preliminary reading of negative gross domestic product for the first quarter (the first such print since the second quarter of 2020) is a clear sign that things could get worse before they get better.

The highest inflation in 41 years, the ongoing war between Russia and Ukraine, supply-chain issues and a host of additional woes continue to pressure the equity markets. Many investors are getting nervous, especially with the Nasdaq already dipping in and out of bear market status.
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We decided to screen the Goldman Sachs Conviction List, looking for ideas for concerned investors that have a defensive posture and pay solid dividends. The reason they make sense now is that they are the very best ideas from the top investment bank, not just on Wall Street but around the world.

It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Bank of America

Bank of America Corp. (NYSE: BAC) posted very solid first-quarter results, and rising interest rates are welcomed by banks. The company is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, corporations and governments in the United States and internationally. It operates 5,100 banking centers, 16,300 ATMs, call centers and online and mobile banking platforms.

Bank of America has expanded into several new U.S. markets, with scale across the country positioning it ideally to benefit from accelerating loan growth over the next two years. Moreover, unlike smaller peers, scale allows the bank to increase investment substantially over the next few years without notably jeopardizing returns, driving further market share gains.

Banks almost regardless of size, are a solid idea as the potential for higher net interest income (NII) on portfolio loans to homeowners, farmers and small business owners. NII is one of the strongest tailwinds provided to financial firms in a rising-rate environment, as they can achieve better returns on their cash balances while achieving higher rates of returns from customers who come in for loans.

Bank of America stock investors receive a 2.32% dividend. The Goldman Sachs target price of $47 is less than the $49.16 consensus target but well above Thursday’s closing share price of $36.81.

With the potential for very warm summer weather, this company may look to extend gains into the second half of 2022. DTE Energy Co. (NYSE: DTE) is the largest utility in Michigan. Its largest operating units are DTE Electric, an electric utility serving 2.2 million customers in southeastern Michigan, and DTE Gas, a natural gas utility serving 1.3 million customers in the state. DTE Energy also has non-utility energy businesses that focus on power and industrial projects, natural gas midstream and energy trading.
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The company’s Gas segment purchases, stores, transports, distributes and sells natural gas to residential, commercial and industrial customers throughout Michigan, and it sells storage and transportation capacity. This segment has approximately 19,800 miles of distribution mains, 1,305,000 service pipelines and 1,273,000 active meters, as well as approximately 2,000 miles of transmission pipelines.

Its Gas Storage and Pipelines segment owns natural gas storage fields, lateral and gathering pipeline systems and compression and surface facilities. It also has ownership interests in interstate pipelines serving the Midwest, Ontario and northeast markets.

The company’s Power and Industrial Projects segment offers metallurgical coke; pulverized coal and petroleum coke to the steel, pulp and paper, and other industries; and power, steam and chilled water production, and wastewater treatment services, as well as supplies compressed air to industrial customers.

Shareholders receive a 2.63% dividend. The DTE Energy stock target price at Goldman Sachs is $138. That compares with the $137.63 consensus and Thursday’s closing price of $135.52 a share

Merck

This remains a leading health care stock for conservative investors. Merck & Co. Inc. (NYSE: MRK) offers therapeutic and preventive agents to treat cardiovascular issues, type 2 diabetes, asthma, nasal allergy symptoms, allergic rhinitis, chronic hepatitis C virus, HIV-1 infection, fungal infections, intra-abdominal infections, hypertension, arthritis and pain, inflammatory, osteoporosis, male pattern hair loss and fertility diseases.

The company also provides neuromuscular blocking agents for use in surgery, anti-bacterial products for skin and skin structure infections, cholesterol modifying medicines, non-sedating antihistamine and vaginal contraceptive products.

Investors receive a 3.23% dividend. Goldman Sachs has a $101 target price on Merck stock. The consensus target is $92.58. Thursday’s closing print of $88.58 was up 5% for the day.

NRG Energy

This stock has made a nice run off the lows and is another solid idea for investors who are more conservative. NRG Energy Inc. (NYSE: NRG) operates as an integrated power company in the United States that produces, sells and delivers electricity and related products and services to 3.6 million residential, industrial and commercial consumers.
The company generates electricity using natural gas, coal, oil, solar, nuclear and battery storage. It also provides system power, distributed generation, renewable products, backup generation, storage and distributed solar, demand response, energy efficiency, advisory and on-site energy solutions, as well as carbon management and specialty services.
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In addition, NRG trades in electric power, natural gas and related commodities; environmental products; weather products; and financial products, including forwards, futures, options and swaps. Further, the company procures fuels; provides transportation services; and directly sells energy, services and products and services to retail customers under the NRG, Reliant, Green Mountain Energy, Stream, XOOM Energy and other brand names.

The dividend yield is 3.83%. The Goldman Sachs price objective is $51, while the consensus figure is $45.09. NRG Energy stock closed on Thursday at $37.15.

PepsiCo

This top consumer staples provider soon will be supplying the goods for summer picnics. PepsiCo Inc. (NYSE: PEP) operates as a food and beverage company worldwide. Its Frito-Lay North America segment offers Lay’s and Ruffles potato chips; Doritos, Tostitos and Santitas tortilla chips; and Cheetos cheese-flavored snacks, branded dips and Fritos corn chips.

The Quaker Foods North America segment provides Quaker oatmeal, grits, rice cakes, natural granola and oat squares, as well as the recently name-changed Aunt Jemima mixes and syrups, and Quaker Chewy granola bars, Cap’n Crunch cereal, Life cereal and Rice-A-Roni side dishes.

PepsiCo’s North America Beverages segment offers beverage concentrates, fountain syrups and finished goods under the Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, Tropicana Pure Premium, Sierra Mist and Mug brands, as well as ready-to-drink tea and coffee, and juices.

Shareholders receive a 2.47% dividend. The $187 Goldman Sachs price target compares with the $183.44 consensus target on PepsiCo stock. Shares closed at $177.50 on Thursday.

Phillips 66

This extremely diversified energy company has a long and successful operating history. Phillips 66 (NYSE: PSX) operates through four segments: Midstream, Chemicals, Refining, and Marketing and Specialties. The company holds many of these assets within its master limited partnership, Phillips 66 Partners.

The company is able to benefit from the tax-advantaged structure while still operating a more diversified operating business that also contains many assets that are not ideal master limited partnership assets, such as its fast-growing chemical manufacturing business and its super-profitable refined products marketing business.
After Phillips 66 posted stellar results for the latest quarter, Goldman Sachs said this:

Phillips 66 remains our top idea within our Refining coverage, where we continue to see headroom for incremental capital returns this year, are constructive on a positive rate of change at Refining in 2022, and continue to see attractive non-refining value in Midstream, Marketing, and Chemicals.

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Investors get a 4.43% dividend with Phillips 66 stock. Goldman Sachs has set its price target at $97. The consensus target is higher at $101.36. The shares closed over 5% higher on Wednesday at $87.21.

Realty Income

This is an ideal stock for growth and income investors looking for a safer, inflation-busting idea for 2022. Realty Income Corp. (NYSE: O) is an S&P 500 company dedicated to providing stockholders with dependable monthly income.

The company is structured as a real estate investment trust (REIT), and its monthly distributions are supported by the cash flow from over 6,500 real estate properties owned under long-term lease agreements with commercial tenants.

To date, the company has declared 608 consecutive common stock monthly dividends throughout its 54-year operating history and increased the dividend 109 times since its public listing in 1994, and it is a member of the S&P 500 Dividend Aristocrats index.

Investors receive a 4.14% distribution monthly. The Goldman Sachs price target is $86. The consensus target is $77.69. The closing share price for Realty Income stock on Thursday was $72.71.

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The market is running out of gas, and fast, and soon may run into some very strong headwinds. While the bear market rally is attractive after a grim April, continued high energy prices when the summer driving season rolls around in a month, combined with other huge increases in costs, will be an issue going forward. Toss in some aggressive interest rate hikes in May, June and July, and we could be in for some strong turbulence going forward. These seven stocks can weather those potential storms much better than most.

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