Growing concerns over high inflation, rising Treasury yields, escalating sanctions on Russia, deepening supply chain constraints, and rising COVID-19 cases have been inviting immense volatility in the stock market. This, combined with rising energy prices, might lead the economy to witness contraction.
As these bearish factors are expected to persist in the near term, it could be wise to bet on fundamentally-sound non-cyclical, or defensive, companies that enjoy an inelastic demand for their products.
Defensive stocks Diageo plc (DEO), PepsiCo, Inc. (PEP), Unilever PLC (UL), CVS Health Corporation (CVS), and Altria Group, Inc. (MO) possess strong fundamentals and wide market reach. So, they could be wise bets to survive a potential bear market.
Diageo plc (DEO)
Headquartered in London, U.K., DEO produces, distills, and sells alcoholic beverages, including vodkas, whiskeys, tequilas, gins, and beer worldwide. The company provides its products primarily under the Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray, and Guinness brands. It has a 0.43 beta.
On April 19, 2022, DEO announced a new partnership with ecoSPIRITS, a technology company that produces circular packaging solutions for the premium spirits and wine industry, to pilot a sustainable packaging format starting with Smirnoff and Captain Morgan in Southeast Asia. DEO will deploy branded, next-generation packaging technologies to bottle, store, distribute and dispense spirits with selected bars and restaurants. This will help DEO reduce its carbon footprint and waste from single-use glass spirits bottles.
For the fiscal 2022 half-year ended December 31, 2021, DEO’s net sales increased 15.8% year-over-year to £7.96 billion ($10.38 billion). The company’s gross profit came in at £5 billion ($6.52 billion), representing an 18.7% year-over-year improvement. Its operating profit came in at £2.74 billion ($3.58 billion), indicating a 22.5% rise from the prior-year period. DEO’s net income came in at €2.10 billion ($2.72 billion), up 25.7% from the prior-year period. Its EPS increased 24.6% year-over-year to 84p. The company had cash and cash equivalents of £1.78 billion ($2.32 billion) as of December 31, 2021.
Analysts expect DEO’s EPS to improve 15.6% year-over-year to $7.51 in fiscal 2022, ending June 30, 2022. The company surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $19.03 billion for the same fiscal year indicates a 7% year-over-year improvement. The stock has gained 1.9% over the past six months and closed yesterday’s trading session at $203.66.
DEO’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates 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.
It has a B grade for Sentiment, Stability, and Quality. Click here to see the additional ratings for DEO’s Growth, Value, and Momentum.
DEO is ranked #15 of 34 stocks in the B-rated Beverages industry.
PepsiCo, Inc. (PEP)
PEP manufactures or uses contract manufacturers, markets, and sells a variety of grain-based snacks, carbonated and non-carbonated beverages, and foods worldwide. It markets its products through a network of direct-store-delivery, customer warehouses, distributor networks, and e-commerce platforms and retailers. It has a 0.65 beta.
On March 30, 2022, PEP and Schneider Electric SE, a French multinational company providing energy and digital automation solutions for efficiency and sustainability, announced pep+ Renew. The collaboration will help value chain partners accelerate the adoption of renewable electricity and create a more resilient and carbon-efficient food system as part of its goal to achieve net-zero emissions by 2040.
For its fiscal year 2021 fourth quarter ended December 25, 2021, PEP’s net sales increased 12.4% year-over-year to $25.25 billion. The company’s non-GAAP gross profit came in at $13.19 billion, up 9.9% from the prior-year period. PEP’s non-GAAP net income came in at $2.13 billion, indicating a 4.4% year-over-year improvement. Its non-GAAP EPS increased 4.1% year-over-year to $1.53. The company had $5.60 billion in cash and cash equivalents as of December 25, 2021.
Analysts expect PEP’s EPS to grow 6.2% year-over-year to $6.65 for its fiscal year 2022, ending December 31, 2022. It surpassed Street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $81.22 billion for the same fiscal year represents a 2.2% rise from the prior-year period. Over the past six months, the stock has gained 8% and ended yesterday’s trading session at $172.90.
PEP’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.
It has a B grade for Stability and Quality. Click here to see the additional ratings for PEP (Sentiment, Growth, Value, and Momentum).
PEP is ranked #13 in the B-rated Beverages industry.
Unilever PLC (UL)
Headquartered in London, U.K., UL offers consumer goods, food, detergents, fragrances, beauty, home, and personal care products. The company operates through Beauty & Personal Care; Home Care; and Foods & Refreshment segments. It has a 0.17 beta.
On January 25, 2022, UL announced changes to its organizational model by introducing five distinct business groups–Beauty & Wellbeing; Personal Care; Home Care; Nutrition; and Ice Cream. Its objective is to be a simpler, more category-focused business. Supported by Unilever Business Operations, the business groups will be provided the technology, systems, and processes to drive operational excellence across the industry and be more responsive to consumer and channel trends.
For its fiscal 2022 full year ended December 31, 2021, UL's turnover increased 3.4% year-over-year to €52.44 billion ($56.80 billion). The company’s operating profit came in at €8.70 billion ($9.43 billion), up 4.8% from the prior-year period. Its pre-tax income came in at €8.56 billion ($9.27 billion), representing a 7% rise from its prior-year value. UL's net profit came in at €6.62 billion ($7.17 billion) for the quarter, indicating a 9% rise from the prior-year period. Its EPS increased 9.2% year-over-year to €2.32. The company had €3.42 billion ($3.70 billion) in cash and equivalents as of December 31, 2021.
The consensus revenue estimate of $60.94 billion for fiscal 2022 ending December 31, 2022, indicates a 1.6% year-over-year improvement. The stock has lost 14.7% over the past six months and closed yesterday’s trading session at $44.79.
UL’s POWR Ratings reflect its solid prospects. It has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has a B grade for Value, Sentiment, and Stability. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for UL’s Growth, Quality, and Momentum here.
UL is ranked #8 of 61 stocks in the Consumer Goods industry.
CVS Health Corporation (CVS)
CVS delivers integrated pharmacy health care services and operates through Pharmacy Services; Retail/LTC; and Corporate segments. The company serves employer groups, individuals, college students, health care providers, governmental units, government-sponsored plans, labor groups, and expatriates. Its stock has a 0.79 beta.
On February 22, 2022, the Louisiana Department of Health announced a new statewide Medicaid contract through the Louisiana Medicaid Managed Care Program to award CVS' Aetna Better Health of Louisiana company. Although serving more than seven years, this will allow Aetna Better Health of Louisiana to continue to serve several other Medicaid eligible populations.
For its fiscal 2021 fourth quarter ended December 31, 2021, CVS’ total revenues increased 10.1% year-over-year to $76.60 billion. The company’s adjusted operating income came in at $4.15 billion for the quarter, representing a 40.9% rise from the prior-year period. While its adjusted net income increased 54.4% year-over-year to $2.64 billion, its adjusted EPS grew 52.3% to $1.98. As of December 31, 2021, the company had $9.41 billion in cash and cash equivalents.
CVS surpassed the consensus EPS estimates in each trailing four quarters. Analysts expect the company’s revenue to reach $307.68 billion for fiscal 2022 ending December 31, 2022, representing a 5.3% rise from the prior-year period. Over the past six months, the stock has gained 22.4% and ended yesterday’s trading session at $103.91.
The stock’s strong fundamentals are reflected in its POWR Ratings. CVS has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has a B grade for Growth, Stability, Value, and Sentiment. Click here to see the additional ratings for CVS (Quality and Momentum).
CVS is ranked #1 of 4 stocks in the A-rated Medical - Drug Stores industry.
Altria Group, Inc. (MO)
MO manufactures and sells smokable products, oral tobacco products, and wine. The company’s popular brands are Marlboro cigarettes, Black & Mild cigars, and moist smokeless tobacco products under the Copenhagen, Skoal, Red Seal, and Husky brands. It provides finance leasing services, primarily in transportation, power generation, real estate, and manufacturing equipment industries. The products are sold mainly to wholesalers, including distributors, and large retail organizations, such as chain stores. It has a 0.61 beta.
On April 5, 2022, MO signed a virtual power purchase agreement (VPPA) for energy produced at Inertia Wind Energy Center in Haskell and Throckmorton Counties, Texas, to address the emissions from 100% of MO’s annual purchased electricity demand across all U.S. facilities. This marks significant progress toward MO’s science-based environmental targets, achieving 100% renewable electricity and reducing operational greenhouse gases emissions by 55% by 2030.
For its fiscal year 2021 fourth quarter ended December 31, 2021, MO’s net revenues came in at $6.23 billion. The company’s gross profit increased 5.4% year-over-year to $3.32 billion. Its adjusted EBIT came in at $2.68 billion, indicating a 9.2% increase from the year-ago period. MO’s adjusted net earnings came in at $1.99 billion, up 8.3% from the prior-year period. Its adjusted EPS increased 10.1% year-over-year to $1.09. As of December 31, 2021, the company had $4.54 billion in cash and cash equivalents.
Analysts expect the company’s EPS to improve 5% year-over-year to $4.84 in fiscal 2022, ending December 31, 2022. It surpassed Street EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 15.3% to end yesterday’s trading session at $55.22.
MO’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.
It has an A grade for Quality and a B grade for Growth. Click here to see the additional ratings for MO (Value, Stability, Sentiment, and Momentum).
The stock is ranked #4 of 10 stocks in the B-rated Tobacco industry.
DEO shares were unchanged in after-hours trading Wednesday. Year-to-date, DEO has declined -6.07%, versus a -6.08% 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.
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