Top 3 Defensive Stocks for Stability in a Volatile Market

NYSE: PG | Procter & Gamble Co. News, Ratings, and Charts

PG – With the Fed’s decision and presidential election looming, market jitters might affect stock performances. Amid this backdrop, investors could consider buying defensive stocks Procter & Gamble (PG), Coca-Cola (KO), and Clorox (CLX) for stability in a volatile market. Read on….

Defensive stocks can be considered a safe haven for investors looking to protect their portfolios during market volatility. Their stable performance and reliable dividends make them attractive for investors seeking stability and protection in uncertain market environments.

Given this backdrop, investors could consider buying defensive stocks such as The Procter & Gamble Company (PG), The Coca-Cola Company (KO), and The Clorox Company (CLX) for stability in a volatile market.

Defensive stocks are typically those in industries that are less affected by economic downturns or market volatility. They tend to have stable earnings and attract investors seeking safety and stability in their portfolios. These companies provide essential goods and services, such as utilities, consumer staples, healthcare, and telecommunications.

They tend to outperform other sectors during market uncertainty, making them a safe investment to reduce overall portfolio risk and mitigate losses. Although inflation shows signs of moderating, as indicated by the core personal consumption expenditures price index increased just 2.6% from a year ago.

This is considered by the Fed as an important inflation gauge, which has raised hopes for an interest rate cut. However, the central bank’s policy path is not yet certain. Moreover, with the U.S. presidential election approaching, more market volatility might be on the horizon.

Defensive stocks often have lower beta values, meaning they are less correlated with overall market movements. This can provide diversification benefits in a portfolio, helping to reduce overall volatility and provide stability during turbulent market conditions.

Considering these conducive trends, let’s examine the fundamentals of the three featured defensive stocks.

The Procter & Gamble Company (PG)

PG provides branded consumer packaged goods worldwide. It operates through five segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care. 

PG’s trailing-12-month CAPEX/Sales of 3.89% is 17.9% higher than the industry average of 3.30%. Similarly, its trailing-12-month EBIT margin and net income margin of 25.43% and 17.99% are 168.7% and 252.5% higher than the industry averages of 9.46% and 5.10%, respectively.

PG’s net sales for the fiscal third quarter that ended March 31, 2024, increased marginally year-over-year to $20.20 billion. Its non-GAAP gross profit stood at $10.35 billion. In addition, its non-GAAP net earnings attributable to PG amounted to $3.76 billion. Also, its non-GAAP net earnings per common share came in at $1.52.

Analysts expect PG’s revenue for the quarter ending June 30, 2024, to increase 1.8% year-over-year to $20.91 billion. Its EPS for the same quarter is expected to rise marginally year-over-year to $1.37. The company surpassed Street EPS estimates in each of the trailing four quarters, which is impressive.

Over the past six months, the stock has gained 14.1%, closing the last trading session at $166.62. It has a five-year beta of 0.41, indicating lesser volatility than the broader market.

PG’s POWR Ratings reflect this positive outlook. It has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

PG has an A grade for Stability and a B for Sentiment and Quality. It is ranked #18 out of 53 stocks in the B-rated Consumer Goods industry. Click here to see PG’s Growth, Value, and Momentum ratings.

The Coca-Cola Company (KO)

KO manufactures, markets, and sells various nonalcoholic beverages worldwide. The company provides sparkling soft drinks, sparkling flavors, water, sports, coffee, and tea, juice, value-added dairy, and plant-based beverages, and other beverages. 

On April 23, 2024, KO and Microsoft Corporation (MSFT) announced a five-year strategic partnership to align KO’s core technology strategy systemwide, enable the adoption of leading-edge technology, and foster innovation and productivity globally. KO made a $1.10 billion commitment to the Microsoft Cloud and its generative AI capabilities, underscoring KO’s ongoing technology transformation.

KO’s trailing-12-month levered FCF margin of 23.46% is 305.3% higher than the industry average of 5.79%. Likewise, its trailing-12-month Return on Common Equity and Return on Total Assets of 41.76% and 10.85% are 271.2% and 135.4% higher than the industry averages of 11.25% and 4.61%, respectively.

For the fiscal first quarter that ended March 29, 2024, KO’s net operating revenues and non-GAAP gross profit stood at $11.30 billion and $6.99 billion, up 2.9% and 4.7% year-over-year, respectively. For the same quarter, its non-GAAP net income and net income per share increased 6.1% and 5.9% from the year-ago quarter to $3.12 billion and $0.72, respectively.

Street expects KO’s EPS for the quarter ending June 30, 2024, to increase 3.1% year-over-year to $0.80. Its fiscal 2025 revenue is expected to rise 5.1% year-over-year to $48.10 billion. The company surpassed consensus EPS and revenue estimates in each of the trailing four quarters.

KO has gained 8.9% over the past six months, closing the last trading session at $63.91. It has a five-year beta of 0.59.

KO has a B grade for Stability and Quality. It is ranked #14 out of 33 stocks in the B-rated Beverages industry. Get KO’s Growth, Value, Momentum, and Sentiment ratings here.

The Clorox Company (CLX)

CLX manufactures and markets consumer and professional products worldwide. It operates through four segments: Health and Wellness, Household, Lifestyle, and International.

On April 3, 2024, CLX announced the launch of its new and improved line of Multi-Surface Cleaners. The new formulation of all Scented Pine-Sol Multi-Surface Cleaners, including Lemon Fresh, Lavender Clean, and Refreshing Clean, is two times more concentrated than before, offering twice the cleaning power in each drop.

CLX’s trailing-12-month Return on Common Equity of 510.64% is considerably higher than the industry average of 11.25%. Its trailing-12-month EBIT margin and levered FCF margin of 12.69% and 7.64% are 34.1% and 32% higher than the industry averages of 9.46% and 5.79%, respectively.

CLXs net sales for the fiscal third quarter that ended March 31, 2024, amounted to $1.81 billion. Its gross profit came to $766 million. Moreover, its adjusted EBIT stood at $260 million. The company’s adjusted earnings per share rose 13.2% year-over-year to $1.71.

For the quarter ending September 30, 2024, CLX’s revenue and EPS are expected to increase 24.9% and 179.4% year-over-year to $1.73 billion and $1.37, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters. The stock has gained 3.9% over the past month to close the last trading session at $136.60. It has a 0.38 five-year beta.

CLX has a B grade for Quality. It is ranked #44 in the Consumer Goods industry. Click here to see CLX’s Growth, Value, Momentum, Stability, and Sentiment ratings.

What To Do Next?

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PG shares were trading at $164.97 per share on Friday afternoon, down $1.65 (-0.99%). Year-to-date, PG has gained 14.02%, versus a 15.34% rise in the benchmark S&P 500 index during the same period.

About the Author: Neha Panjwani

From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance. More...

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