The rapid spread of the COVID-19 Delta variant, rising inflation, and the geopolitical tensions related to the collapse of the Afghan government are fueling significant stock market volatility. Because rising inflation and a likely slowdown in economic growth due to the resurgence of COVID-19 cases are raising concerns over the potential for a market correction in the near term, many investors are now looking to hedge their portfolios.

While there are several portfolio hedging strategies that investors could follow in preparation for a potential market decline, betting on stocks that consistently pay dividends and have a history of generating stable earnings, known as defensive stocks, could be one of the best options. Consistent demand for their products irrespective of business cycles help these companies maintain their financials and protect their stocks from market downturns.

Expanded market reach and near inelastic demand for their products we think make UnitedHealth Group Incorporated (UNH), The Coca-Cola Company (KO), AT&T Inc. (T), Costco Wholesale Corporation (COST), and CVS Health Corporation (CVS) solid defensive plays.

UnitedHealth Group Incorporated (UNH)

UNH is a diversified health care and insurance company that offers a broad spectrum of products and services through UnitedHealthcare and Optum platforms. The Minnetonka, Minn.-based company provides employers with products and resources to plan and administer employee benefit programs. It has a 0.77 beta, indicating that the stock is less volatile than  the broader market.

UNH is scheduled to pay a $1.45 quarterly cash dividend on September 13, 2021. The stock pays a $5.80 dividend per share annually, which translates to a 1.39% yield. The company’s dividend has grown at a 19.6% rate over the past five years.

In an announcement dated July 20, 2021, UNH’s UnitedHealthcare and Peloton Interactive Inc. (PTON) said they had joined to provide UNH members access to PTON’s fitness classes via the Peloton App at no additional cost. Expanding access to PTON’s industry-leading health and wellness community builds upon UnitedHealthcare’s commitment to developing digital health resources and consumer-centric benefits to help people live healthy lives.

UNH’s total revenues for its fiscal second quarter, ended June 30, 2021, increased 14.8% year-over-year to $71.32 billion. Its revenues from the UnitedHealthcare business were  $55.47 billion, up 13% from the prior-year period. And revenues from its Optum business increased 17.2% year-over-year to $38.30 billion. The company had $19.83 billion in cash and cash equivalents as of June 30, 2021.

A $4.42 consensus EPS estimate for the current quarter, ending September 30, 2021, represents a 25.8% improvement year-over-year. UNH surpassed consensus EPS estimates in each of the trailing four quarters. The $71.09 billion consensus revenue estimate for the current quarter represents a 9.2% gain from the prior-year period. Analysts expect the stock’s EPS to grow at a 13% rate per annum over the next five years.

The stock has gained 29% over the past six months and 3.2% over the past three months. It closed yesterday’s trading session at $417.32. 

UNH’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

The stock has an A grade for Stability, and a B grade for Sentiment and Quality. Click here to see the additional ratings for UNH (Growth, Value, and Momentum). UNH is ranked #2 of 11 stocks in the B-rated Medical – Health Insurance industry. 

The Coca-Cola Company (KO)

KO owns or licenses, and markets beverage concentrates, finished sparkling soft-drinks brands, enhanced water, energy drinks, juice, dairy, and syrups to fountain retailers, such as restaurants and convenience stores worldwide. It operates through a network of independent bottling partners, distributors, wholesalers, retailers, and bottling and distribution operators. The stock of the Atlanta, Ga.-based concern has  a 0.63 beta.

KO is scheduled to pay a $0.42 quarterly cash dividend on October 1, 2021. The stock pays a $1.68 dividend per share annually, which translates to a 2.97% yield. The company’s dividend has grown at a 4.1% rate over the past five years.

On April 19, KO and Coca-Cola Beverages Africa (CCBA) announced plans to list CCBA as a publicly traded company on  the Amsterdam and Johannesburg stock exchanges. As Africa becomes a key growth market for KO, this IPO should  allow CCBA to operate as an independent, managed, and domiciled business and gain a broad, supportive, long-term investor base for the continued development of the business.

For its fiscal second quarter, ended July 2, 2021, KO’s non-GAAP net operating revenues increased 41.1% year-over-year to $10.13 billion. The company’s non-GAAP gross profit has been reported at $6.22 billion, representing a 50.4% year-over-year improvement. Its non-GAAP operating income came in at $3.21 billion, up 49% from the prior-year period. While its non-GAAP net income increased 61.5% year-over-year to $2.93 billion, its non-GAAP EPS increased 61.9% year-over-year to $0.68. The company had $9.19 billion in cash and cash equivalents as of July 2, 2021.

Analysts expect KO’s EPS to improve 5.1% in the current quarter, ending September 30, 2021, to $0.58. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Analysts expect its revenue to be $9.75 billion for the current quarter, representing a 12.8% rise year-over-year. Its EPS is expected to grow at a 10.1% rate per annum over the next five years.

The stock has gained 11.3% over the past six months and 4% over the past three months. It ended yesterday’s trading session at $56.50. 

KO’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. 

The stock has a B grade for Stability, Growth, Quality, and Sentiment. Click here to see the additional ratings for KO (Value and Momentum). KO is ranked #9 of 37 stocks in the B-rated Beverages industry. 

AT&T Inc. (T)

T is a provider of telecommunications, media, and technology services worldwide. The Dallas, Tex.-based company’s services and products include wireless communications, data/broadband and Internet services, video services, local exchange services, long-distance services, telecommunications equipment, managed networking, and wholesale services. Its stock has a 0.75  beta.

T paid a $0.52 quarterly cash dividend on August 2, 2021. The stock pays a $2.08 dividend per share annually, which translates to a 7.47% yield. The company’s dividend has grown at a 1.7% rate over the past five years.

On August 16, 2021, the Arkansas 911 Board selected T to implement its Next Generation 9-1-1 AT&T ESInet service to improve emergency communications across the state. Using location-based geospatial routing, highly secure solutions, enhanced backup capabilities, and advanced analytics, T hopes to continue providing services to the State of Arkansas in the future.

T’s total operating revenues for its fiscal second quarter, ended June 30, 2021, increased 7.6% year-over-year to $44.05 billion. The company’s net income came in at $1.51 billion, up 23.2% from the prior-year period. Its adjusted EPS has been reported at $0.89 for the quarter, representing a 7.2% year-over-year improvement. As of June 30, 2021, the company had $11.87 billion in cash and cash equivalents.

For the current quarter, ending September 30, 2021, analysts expect T’s EPS to be $0.80, up 5.3% from the prior-year period. It surpassed the Street’s EPS estimates in three of the trailing four quarters. Analysts expect T’s EPS to grow at a 2.7% rate per annum over the next five years. T closed yesterday’s trading session at $27.83. 

T’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. 

The stock has a B grade for Growth and Stability. We have also graded T for Value, Sentiment, Momentum, and Quality. Click here to access all T’s ratings. Of  23 stocks in the Telecom – Domestic industry, T is ranked #1.

Costco Wholesale Corporation (COST)

COST operates wholesale membership warehouses that offer branded and private-label products in a range of merchandise categories worldwide. The company sells all kinds of food, automotive supplies, hardware, sporting goods, jewelry, electronics, apparel, health, and beauty aids, as well as other goods. Its stock has a 0.64 beta. COST is headquartered in Issaquah, Wash.

COST paid a $0.79 quarterly cash dividend on August 13, 2021. The stock pays a $3.16 dividend per share annually, which translates to a 0.71% yield. The company’s dividend has grown at an 11.9% rate over the past five years.

COST reported $15.21 billion in net sales for the  month of July, ended August 1, 2021, which represented a 16.6% rise from the prior-year period. This was fueled by the company’s expanding market reach and e-commerce sales.

COST’s total revenue for its fiscal third quarter, ended May 9, 2021, increased 21.5% year-over-year to $45.28 billion. The company’s operating income came in at $1.66 billion, up 41.1% from the prior-year period. While its net income increased 45.6% year-over-year to $1.22 billion, its EPS increased 45.5% to $2.75. The company had $10.23 billion in cash and cash equivalents as of May 9, 2021.

Analysts expect COST’s EPS to improve 14.9% year-over-year in the current quarter, ending August 31, 2021, to $3.49. It surpassed the Street’s EPS estimates in three of the trailing four quarters. A $60.37 billion  consensus revenue estimate for the current quarter represents a 13.1% rise from the prior-year period. Analysts expect the stock’s EPS to grow at a 10.6% rate per annum over the next five years.

COST has gained 25% over the past six months and 8.7% over the past month. It closed yesterday’s trading session at $446.21. 

COST’s POWR Ratings reflect its solid prospects. The company has an overall B rating, which translates to Buy in our proprietary rating system. 

COST has a B grade for Stability and Quality. In addition to the POWR Ratings grades we’ve just highlighted, one can see COST ratings for Growth, Value, Sentiment, and Momentum here. Of  39 stocks in the A-rated Grocery/Big Box Retailers industry, COST is ranked #15. 

CVS Health Corporation (CVS)

CVS delivers integrated pharmacy health care services in the United States. The Woonsocket, R.I.-based company operates through three segments: Pharmacy Services; Retail/LTC; and Corporate. It serves employer groups, individuals, college students, health care providers, governmental units, government-sponsored plans, labor groups, and expatriates. Its stock has a 0.81 beta.

CVS paid a $0.50 quarterly cash dividend on August 2, 2021. The stock pays a $2 dividend per share annually, which translates to a 2.36% yield. The company’s dividend has grown at a 4.3% rate over the past five years.

On August 10, 2021, CVS’ Aetna company announced an innovative health care solution, Aetna Virtual Primary Care, to provide a simple, affordable, convenient way to receive quality primary care from a physician-led care team virtually, accessible anywhere. CVS expects to see good demand for the solution from its customers and capitalize on the growing digital health solutions.

CVS’ total revenues for its fiscal first quarter, ended June 30, 2021, increased 11.1% year-over-year to $72.62 billion. The company had $7.12 billion in cash and cash equivalents as of June 30, 2021.

A $1.79 consensus EPS estimate for the current quarter, ending September 30, 2021, represents a 7.8% improvement year-over-year. CVS surpassed consensus EPS estimates in each of the trailing four quarters. The  $70.37 billion consensus revenue estimate  for the current quarter represents a 4.9% gain from the prior-year period. Analysts expect the stock’s EPS to grow at a 6.3% rate per annum over the next five years.

The stock has gained 18.3% over the past six months and 3.5% over the past month. It closed yesterday’s trading session at $84.59. 

It’s no surprise that CVS has an overall A rating, which equates to Strong Buy in our POWR Ratings system.

The stock has a B grade for Growth, Value, Sentiment, and Stability. Click here to see the additional ratings for CVS’ Momentum and Quality. CVS is ranked #1 of 6 stocks in the Medical – Drug Stores industry.

UNH shares were trading at $425.78 per share on Thursday afternoon, up $8.46 (+2.03%). Year-to-date, UNH has gained 22.29%, versus a 18.64% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

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