Inflation has declined sharply over the past year but remains stubbornly high, which has raised concerns of an impending recession. This saw the consumer confidence of Americans ebbing further in September.

The decline in consumer confidence in September was largely triggered by the Fed’s hawkish stance as it hinted at another interest rate hike this year. Markets have since been volatile and are expected to remain so for an extended period.

Given this situation, investing in defensive stocks like ALLETE, Inc. ALE, Consolidated Water Co. Ltd. CWCO, American Water Works Company, Inc. AWK, Kimberly-Clark Corporation KMB and Colgate-Palmolive Company CL should be safe.

Consumer Confidence Declines

The Conference Board said on Sep 26 that the Consumer Confidence Index declined to 103 in September from an upwardly revised 108.7 in August, to hit a four-month low as higher prices and inflationary pressures raised fears of a recession. Analysts had expected the index to come up with a reading of 105.5.

The decline in confidence of Americans also reflects growing worries about higher interest rates and the current political environment. The United States faces the threat of a government shutdown on Saturday. This saw the confidence of consumers across all age groups taking a hit in September.

Moreover, a sharp decline in how consumers perceive future business scenarios clearly signals their feeling of helplessness regarding an upcoming economic downturn.

In September, the Expectations Index, the assessment of the short-term economic situation, income and labor market conditions, fell to 73.7 after declining to 83.3 in August.

A reading below 80 is a level that historically signals an upcoming recession within a year.

Although inflation has more than halved over the past year, it still is more than double the Federal Reserve’s 2% target. The Fed thus maintained its hawkish stance and signaled at another interest rate hike this year.

The central bank has increased interest rates on 11 occasions by 525 basis points since March 2022, barring in June and September. Another quarter percentage point would take the terminal interest rate of this hiking cycle to 5.6%, a lot higher than the earlier forecast of 5.1%.

Also, the Fed lowered its forecast for rate hike cuts to two from four next year. This is likely to further dent consumer confidence as higher interest rates for a longer period do not bode well for the economy.

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).

ALLETE, Inc. is an energy company. In addition to its electric utilities, Minnesota Power and Superior Water, Light and Power of Wisconsin, ALE owns ALLETE Clean Energy, based in Duluth, U.S. Water Services headquartered in St. Michael, MN, BNI Energy in Center, ND, and an 8% equity interest in the American Transmission Co.

ALLETE has an expected earnings growth rate of 8.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.1% over the last 60 days. ALE currently has a Zacks Rank #2. ALLETE has a beta of 0.73 and a current dividend yield of 5.03%.

Consolidated Water Co. Ltd., along with its subsidiaries, is involved in the development and operation of seawater desalination plants and water distribution systems in areas where naturally occurring supplies of potable water are scarce or nonexistent. CWCO also focuses on expanding operations in areas with a large proportion of tourist properties and a growing population.

Consolidated Water Co. has an expected earnings growth rate of 170.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 63.3% over the last 60 days. CWCO presently sports a Zacks Rank #1. Consolidated Water has a beta of 0.19 and a current dividend yield of 1.16%.

American Water Works Company, Inc. provides essential water services to over 14 million customers in 24 states and has an employee strength of 6,500. AWK also acquires small water service providers to expand its customer base.

American Water Works Company has an expected earnings growth rate of 6.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last 60 days. AWK presently carries a Zacks Rank #2. American Water Works Company has a beta of 0.57 and a current dividend yield of 2.18%.

Kimberly-Clark Corporation is principally engaged in the manufacture and marketing of a wide range of consumer products around the world. KMB sells its products to supermarkets; mass merchandisers; drugstores; warehouse clubs; variety and department stores; retail outlets; manufacturing, lodging, office building, food service, and health care establishments; and high-volume public facilities.

Kimberly-Clark Corporation has an expected earnings growth rate of 14% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the last 60 days. KMB presently has a Zacks Rank #2. Kimberly-Clark has a beta of 0.39 and a current dividend yield of 3.82%.

Colgate-Palmolive Company’s business strategy closely defines efforts to increase its leadership in key product categories through innovation in core businesses, tracking adjacent categories growth and expansion into new markets and channels. Due to the shift of consumer preference to organic and natural ingredients, CL is expanding its Naturals range, including Naturals toothpaste.

Colgate-Palmolive Company has an expected earnings growth rate of 6.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 60 days. CL presently has a Zacks Rank #2. Colgate-Palmolive Company has a beta of 0.50 and a current dividend yield of 2.67%.
Kimberly-Clark Corporation (KMB): Free Stock Analysis Report

Colgate-Palmolive Company (CL): Free Stock Analysis Report

Allete, Inc. (ALE): Free Stock Analysis Report

American Water Works Company, Inc. (AWK): Free Stock Analysis Report

Consolidated Water Co. Ltd. (CWCO): Free Stock Analysis Report

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