Job openings are shrinking, and the confidence level of Americans has taken a hit. Also, the second-quarter GDP grew slower than it was earlier estimated. Understandably, fears about the economy’s health and an impending recession have once again escalated over the past month.
Americans, who were a lot more confident in July, are suddenly worried. Given this situation, investing in defensive stocks that assure steady returns seems prudent.
Q2 GDP Growth Revised, Job Openings Narrow
On Aug 30, The ADP (ADP) National Employment report showed that private payrolls increased by just 177,000 in August, a lot lower than the upwardly revised reported 371,000 in July. This also missed the consensus estimate of 195,000.
This follows the JOLTS report released on Aug 29, which showed that job openings declined to 8.8 million in July, lower than the consensus estimate of 9.5 million. Also, only 3.5 million workers quit their jobs in July, the lowest level in nearly two-and-a-half years.
Clearly, the labor market is cooling. Lower job openings mean lower chances of people getting jobs. At the same time, fewer workers quitting their jobs decreases the chance of higher wages, which means lower personal income.
In fact, the ADP report mentioned that job stayers saw a pay rise of 5.9% year over year in August, the slowest growth since October 2021.
This came as the U.S. second-quarter GDP growth was revised down to 2.1% at an annualized rate from the earlier reported 2.4%.
Consumer Confidence Takes a Hit
A slowing economy and sky-high inflation have been denting investors’ confidence. The confidence level reflected in Americans in July took a hit in August and declined to 106.1 from July’s revised reading of 114, the Conference Board said on Aug 29. Analysts had expected it to touch 116.
Moreover, a drop in consumers’ assessment of future business scenarios is a distinct indicator that people are experiencing a sense of helplessness concerning an imminent economic downturn.
In August, consumers’ evaluation of current economic conditions saw a significant decline, plummeting to 114.8 from the previous month’s reading of 153. Moreover, their outlook on economic conditions for the upcoming six-month period also deteriorated, dropping to 80.2 this month compared to 88 in July.
Although inflation has more than halved over the past 12 months, it still remains elevated and a lot higher than the Fed’s target range of 2%. This has made Fed officials maintain their hawkish stance, with Fed Chair Jerome Powell indicating more interest rate hikes.
This is likely to further dent consumer confidence given that borrowing costs are already high after the central bank raised interest rates by 525 basis points since March 2022 to take its benchmark rate to the range of 5.25-5.5%.
Our Choices
In order to secure one’s portfolio, we have narrowed our search to five stocks from the defensive sectors such as consumer staples, and utilities. Also, these stocks belong to the category of low-beta stocks (beta greater than 0 but less than 1). Hence, the recommended approach is to invest in low-beta stocks with a high dividend yield and a favorable Zacks Rank. Each of the stocks has a Zacks Rank #1 (Strong Buy) or 2 (Buy).
PepsiCo, Inc. PEP is one of the leading global food and beverage companies. PEP’s complementary brands/businesses include Frito-Lay snacks, Pepsi-Cola beverages, Gatorade sports drinks, Tropicana juices and Quaker foods. PepsiCo serves customers in more than 200 countries and territories.
PepsiCo has an expected earnings growth rate of 10.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.6% over the last 60 days. PEP currently has a Zacks Rank #2. PepsiCo has a beta of 0.52 and a current dividend yield of 2.80%.
FirstEnergy Corp. FE is a diversified energy company. Through its subsidiaries and affiliates, FE engages in the transmission, distribution and generation of electricity.
FirstEnergy Corp has an expected earnings growth rate of 5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last 60 days. FE currently has a Zacks Rank #2. FirstEnergy Corp has a beta of 0.45 and a current dividend yield of 4.28%.
Entergy Corporation ETR is primarily engaged in electric power production and the retail distribution of power. ETR has 30,000 megawatt (MW) of generating capacity, including more than 8,000 MW of nuclear fuel capacity.
Entergy Corporation has an expected earnings growth rate of 4.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days. ETR currently has a Zacks Rank #2. Entergy Corporation has a beta of 0.64 and a current dividend yield of 4.37%.
Atmos Energy Corporation ATO, along with its subsidiaries, is engaged in the regulated natural gas distribution and storage business. ATO serves nearly 3.4 million customers in more than 1,400 communities in eight states, from the Blue Ridge Mountains in the East to the Rocky Mountains in the West. Atmos Energyoperates more than 72,000 miles of transmission and distribution lines as well as 5,700 miles of interstate pipelines.
Atmos Energy has an expected earnings growth rate of 8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days. ATO presently has a Zacks Rank #2. Atmos Energy has a beta of 0.61 and a current dividend yield of 2.52%.
J&J Snack Foods Corp. JJSF is an American manufacturer, marketer and distributor of branded niche snack foods and frozen beverages for the food service and retail supermarket industries. Manufactured and distributed nationwide, JJSF’s principal products include SUPERPRETZEL, BAVARIAN BAKERY and other soft pretzels, ICEE and SLUSH PUPPIE frozen beverages, LUIGI’S, MINUTE MAID frozen juice bars and ices, WHOLE FRUIT sorbet and frozen fruit bars.
J&J Snack Foods’ expected earnings growth rate for the current year is 62.3%. The Zacks Consensus Estimate for current-year earnings has improved 16.4% over the past 60 days. JJSF currently carries a Zacks Rank #1. J&J Snack Foods has a beta of 0.55 and a current dividend yield of 1.74%.
Entergy Corporation (ETR): Free Stock Analysis Report
FirstEnergy Corporation (FE): Free Stock Analysis Report
PepsiCo, Inc. (PEP): Free Stock Analysis Report
Atmos Energy Corporation (ATO): Free Stock Analysis Report
J & J Snack Foods Corp. (JJSF): Free Stock Analysis Report
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