Americans, who were till some time back confident about the nation’s economy, have suddenly started growing more concerned about the future. A sudden jump in inflation in January appears to have dented their confidence.
The Conference Board said on Feb 27 that consumer confidence declined to 106.7 in February after increasing to 110.9 in January, when confidence level hit a two-year high. The unexpected decline comes after three straight months of increase.
Consumers' expectations of inflation fell to 5.2%, hitting its lowest level since March 2020, after declining to 5.3% in February.
Nevertheless, inflation remains a concern. Consumers started showing more confidence in the economy after inflation started showing signs of a sharp decline, which made them hopeful that the Federal Reserve would soon start its rate cuts.
However, the January reading showed inflation rising above 3% once again. The consumer price index (CPI) jumped 3.1% year over year in January and 0.3% month over month. Core CPI, which excluded the volatile food and energy prices, also increased 3.7% year over year.
The Federal Reserve had earlier said that the first rate cut in March is unlikely given that inflation remains above its 2% target.
The fresh inflation reading has now dimmed hopes of a rate cut anytime soon, which has been denting consumers’ confidence levels. Investors were expecting a rate cut in May but the picture is now unclear.
Moreover, the minutes of the Federal Reserve’s January FOMC meeting suggest that the officials are in no rush to cut rates and would take a decision only when they are confident that inflation is declining.
Markets are now pricing in a 22.9% chance that the Fed will cut rates in May by 25 basis points, according to the CME FedWatch Tool. The probability was more than 70% till a few weeks back.
Higher interest rates increase borrowing costs, which doesn’t bode well for the economy.
Our Choices
Investors should thus focus on stocks that provide risk-adjusted returns, such as Colgate-Palmolive Company’s CL, Molson Coors Beverage Company TAP, Tyson Foods TSN, American Water Works Company, Inc. AWK and Consolidated Water Co. Ltd. CWCO.
These firms are considered defensive due to their non-cyclical nature and affiliation with the consumer staples and utilities sectors. This implies that fluctuations in the market have minimal influence on these enterprises.
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). You can see the complete list of today’s Zacks #1 Rank stocks here.
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 7.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the past 60 days. CL presently has a Zacks Rank #2. Colgate-Palmolive has a beta of 0.42 and a current dividend yield of 2.21%.
Molson Coors Beverage Company, the global manufacturer and seller of beer and other beverage products, has an impressive diverse portfolio of owned and partner brands. TAP’s brands include global priority brands such as Blue Moon, Miller Lite, CoorsBanquet, Coors Light, Miller Genuine Draft and Staropramen, as well as regional champion brands like Carling and Molson Canadian.
Molson Coors Beverage Company’s expected earnings growth rate for the current year is 4.2%. The Zacks Consensus Estimate for the current-year earnings has improved 4.6% over the past 60 days. TAP presently sports a Zacks Rank #1. Molson CoorsPalmolive has a beta of 0.82 and a current dividend yield of 2.61%.
Tyson Foods is the biggest U.S. chicken company and produces, distributes and markets chicken, beef, pork as well as prepared foods. TSN’s products are marketed and sold primarily by sales staff to grocery retailers, grocery wholesalers, meat distributors, military commissaries, industrial food processing companies, chain restaurants, international export companies and domestic distributors.
Tyson Foods’expected earnings growth rate for the current year is 74.6%. The Zacks Consensus Estimate for the current-year earnings has improved 23.2% over the past 60 days. TSN currently sports a Zacks Rank #1. Tyson Foods has a beta of 0.77 and a current dividend yield of 3.64%.
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 6.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last 60 days. AWK presently carries a Zacks Rank #2. American Water Works has a beta of 0.65 and a current dividend yield of 2.40%.
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 225.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 60 days. CWCO presently has a Zacks Rank #2. Consolidated Water has a beta of 0.12 and a current dividend yield of 1.30%.
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