The current market correction appears to be picking up steam as all three major indexes had yesterday their worst trading days in weeks. The S&P 500 fell 2.4%, led by a significant drop in the energy and tech sectors. The Energy Select SPDR ETF (XLE) was down 4.5%, and the…
Technology Select SPDR ETF (XLK) fell 3.1%. This was the lowest level for the S&P 500 since July. The Dow Jones Industrial Average fell 1.9%, and the Nasdaq Composite index fell 3%, which brought the tech-dominated index near a two-month low.
The volatile downtrend has made some investors nervous, as expected. One way to ride out this storm is to hold defensive stocks. There are many different types of stocks that could be considered defensive, but I like to focus on three core principles: low beta, consistent dividends, and stable earnings. According to Investopedia, beta is a statistical measure of risk in investments. It measures a stock’s volatility in relation to the stock market. A higher volatile stock has a beta over 1, while a lower volatility stock has a beta below 1.
I screened for stocks with a beta below 1, a growing dividend yield, and growing earnings. This screen resulted in four well-known stocks: Fastenal Co (FAST – Get Rating), Eli Lilly and Company (LLY – Get Rating), Lockheed Martin (LMT – Get Rating), and Kimberly-Clark (KMB – Get Rating).
FAST is a national wholesale distributor of industrial and construction supplies. It distributes products through more than 3,000 stores, mainly located in North America. The company initially sold just fasteners but added new products in 1993, such as tools, material handling, janitorial, electrical, safety and welding supplies. Fasteners remain its largest category, with a third of its sales.
The company has been benefiting from higher demand for personal protective equipment products due to the pandemic. FAST has adopted FAST Solutions, an industrial vending process that could revolutionize the industrial distribution system. The firm installs vending machines at a customer’s location and keeps it filled with products they need. Industrial vending is one of the company’s primary growth drivers. It has the potential to increase revenue and profits.
The company meets all my requirements for a defensive stock. Its has a current dividend yield of 2.3% and has seen dividend growth of 12.3% over the past five years. Earnings have also been growing at a rate of 10.5% over five years. FAST has a 1-year beta of 0.95 and a 3-year beta of 0.98.
The stock is rated a “Buy” by our POWR Ratings system. It has a grade of “B” for Buy & Hold Grade, Peer Grade, and Industry Rank, three of the components that make up the POWR Ratings. FAST is also ranked #22 out of 58 stocks in the Industrial-Equipment industry.
LLY is one of the world’s largest pharmaceutical companies, with a diversified product portfolio including Alimta and Verzenio for cancer; Jardiance, Trulicity, Humalog, and Humulin for diabetes; and Taltz and Olumiant for immunology. Its pharmaceutical categories include neuroscience (Zyprexa, Cymbalta, Emgality), diabetes, oncology, immunology, and others (Cialis).
The company expects sales growth to be driven by higher demand for Trulicity and Taltz and new product launches in its diabetes business. LLY is also making progress in its efforts to create therapies that treat COVID. Also, the company has been…
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