When every rally attempt eventually fails, market veterans know that it is likely that the path of least resistance for the stock market is lower. While a bounce here and there is not unusual, the market is very expensive. With September here, we also enter the weakest time of the year for the equity markets. Another 75-basis-point rate increase in the three weeks is likely, and the storm clouds are gathering.
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The highest inflation in 41 years, the ongoing war between Russia and Ukraine, continued supply-chain issues and a host of additional woes continue to pressure the equity markets. Many investors are getting nervous, especially with former high-growth sectors like homebuilding starting to unwind. The mounting negatives and the historical data that point to more downside suggest it is high time to move to safer equity positions that pay dividends.

So, we screened 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 one of the top investment banks, not just on Wall Street, but around the world.

Yet, 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

The company posted very solid second-quarter results, and interest rate increases are welcomed by banks. Bank of America Corp. (NYSE: BAC) 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 on portfolio loans to homeowners, farmers and small business owners is one of the strongest tailwinds provided to financial firms in a rising-rate environment. That is, 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 2.60% dividend. The Goldman Sachs target price of $42 is near the $42.41 consensus target. Wednesday’s closing share price was $33.61.

This top mid-cap stock has rallied nicely off the July lows but still offers investors an outstanding entry point. Bunge Ltd. (NYSE: BG) operates as an agribusiness and food company worldwide. It operates in the following segments.
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The Agribusiness segment purchases, stores, transports, processes and sells agricultural commodities and commodity products, including oilseeds (primarily soybeans, rapeseed, canola and sunflower seeds) and grains (primarily wheat and corn) and vegetable oils and protein meals. It provides its products for animal feed manufacturers, livestock producers, wheat and corn millers and other oilseed processors, as well as third-party edible oil processing companies, as well as for industrial and biodiesel production.

The Edible Oil Products segment provides packaged and bulk oils and fats, including cooking oils, shortenings, margarines, mayonnaise and others for baked goods companies, snack food producers, confectioners, restaurant chains, foodservice operators, infant nutrition companies and other food manufacturers, as well as grocery chains, wholesalers, distributors and other retailers.

The Milling Products segment offers wheat flours and bakery mixes, corn milling products (including dry-milled cornmeals and flours, wet-milled masa and flours, and flaking and brewer’s grits, as well as soy-fortified cornmeal, corn-soy blends, and other products), whole grain and fiber ingredients and milled rice products.

The Sugar and Bioenergy segment produces sugar and ethanol, and it generates electricity from burning sugarcane bagasse. The Fertilizer segment offers nitrogen, phosphate and potassium fertilizers, as well as single super phosphate, ammonia, ammonium thiosulfate, monoammonium phosphate, diammonium phosphate, triple superphosphate, urea, urea-ammonium nitrate, ammonium sulfate and potassium chloride.

Investors receive a 2.41% dividend. Goldman Sachs has a $160 price target for Bunge stock, while the consensus target is less than $130. The shares were last seen Wednesday trading at $99.17.

Constellation Brands

If any company has products that stay in style, it is this one, and it has only 7% foreign sales. Constellation Brands Inc. (NYSE: STZ) is a leading global producer and marketer of beverage alcohol. Its wide-ranging portfolio spans wine, spirits and imported beer.
Constellation Brands is one the world’s largest wine companies overall and is the largest global premium wine company. Key brands include Robert Mondavi, Clos du Bois, Blackstone, Arbor Mist, Black Velvet and SVEDKA vodka. It also owns 100% of the rights to brew, market and sell Modelo’s Mexican beers in the United States.
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Constellation Brands made a gigantic $3.8 billion investment in cannabis company Canopy Growth in 2018 to increase its holdings in the company. The record investment reflects a world in which marijuana has become ubiquitous as its counterculture stigma fades and more states legalize use.

Investors receive a 1.28% dividend. Goldman Sachs has set its price target at $273. The consensus target for Constellation Brands stock is $275.40. The final trade for Wednesday was reported at $246.05.

Merck

This remains a leading health care stock for conservative investors. Merck & Co. Inc. (NYSE: MRK) operates as a health care company worldwide. It operates through the following two segments.

The Pharmaceutical segment offers human health pharmaceutical products in the areas of oncology, hospital acute care, immunology, neuroscience, virology, cardiovascular and diabetes, as well as vaccine products, such as preventive pediatric, adolescent and adult vaccines.

The Animal Health segment discovers, develops, manufactures and markets veterinary pharmaceuticals, vaccines and health management solutions and services, as well as digitally connected identification, traceability and monitoring products.

Merck serves drug wholesalers and retailers, hospitals and government agencies; managed health care providers, such as health maintenance organizations, pharmacy benefit managers and other institutions; and physicians and physician distributors, veterinarians and animal producers. The company has collaborations with AstraZeneca, Bayer, Eisai, Ridgeback Biotherapeutics and Gilead Sciences.

The dividend yield is 3.18%. The Goldman Sachs target price is $106, and the consensus target is $100.14. Merck stock closed at $85.36 on Wednesday.

NRG

This stock has made a nice run off the lows and is a 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.
NRG Energy 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.

NRG Energy stock comes with a 3.34% dividend. The $46 Goldman Sachs price objective compares with a $44.09 consensus figure and the most recent close at $41.28 a share.

PepsiCo

This top consumer staples company will be supplying the goods for football tailgates and parties this fall. 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.

Its 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 2.66% dividend. The price target on PepsiCo stock at Goldman Sachs is $185. The consensus target is $181.69, and shares closed on Wednesday at $172.27.

Phillips 66

This is an extremely diversified energy company has a long and successful operating history and is a long-time Goldman Sachs Conviction List member. Phillips 66 (NYSE: PSX) operates through four segments: Midstream, Chemicals, Refining and Marketing and Specialties and holds many of these assets within its master limited partnership (MLP) Phillips 66 Partners.
Phillips 66 benefits from the tax-advantaged structure while still operating a more diversified operating business that also contains many assets that are not ideal MLP assets, such as its fast-growing chemical manufacturing business and its super-profitable refined products marketing business.
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After Phillips 66 posted stellar results for the latest quarter, Goldman Sachs said:

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.

Investors are paid a very solid 4.16% dividend. The Goldman Sachs price target of $109 is less than the $114.15 consensus target for Phillips 66 stock. The $89.46 close on Wednesday was even lower.

Raytheon Technologies

This top aerospace and defense idea has a diversified mix of businesses. Raytheon Technologies Corp. (NYSE: RTX) is an industry leader in defense, government electronics, space, information technology and technical services.

With a history of innovation spanning 97 years, Raytheon provides state-of-the-art electronics, mission systems integration, C5I products and services, sensing, effects and mission support for customers in more than 80 countries.

In 2020, United Technologies and Raytheon agreed to merge their businesses to create this new aerospace and defense powerhouse. The two-year-old merger, combined with the spin-off of the Carrier and Otis divisions in 2020, has top analysts across Wall Street expecting free cash flow to step up in a big way this year. Toss in the solid recovery in air travel and improving sentiment that could help drive the commercial aerospace business.

The dividend yield is 2.39%. Goldman Sachs has a $108 price objective. The consensus was last seen at $110.06. Raytheon Technologies stock ended Wednesday’s session at $89.75.

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The market is running out of gas, and running out fast, and will face some strong headwinds. Not the least of which will be continued high energy prices when the weather starts to turn cold in a couple of months. Toss in some aggressive interest rate hikes the rest of the year, and we could be in for some strong turbulence going forward. All these stocks can weather those potential storms better than most.

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