3 Defensive Stocks to Weather the Winter Storm

Wednesday, March 3, 2021 | MarketBeat Staff
3 Defensive Stocks to Weather the Winter Storm

The recent S&P 500 pullback off its record high has been caused by a few factors. Concerns about potential inflation, rising bond yields, and ongoing pandemic uncertainty sparked a late-February swoon in the market.

While the downturn has thus far been mild and may ultimately amount to yet another buy the dip opportunity, it has some investors thinking more about defensive stocks.

Here we highlight three compelling names—in the consumer staples, health care, and communications sectors—that are good downside protectors to bunker down with for the rest of the winter.

What is a Good Health & Wellness Stock?

In the consumer defensive space where grocery stores and household product companies often come to mind, Herbalife Nutrition (NYSE:HLF) is an off-the-radar name to consider. It sells nutritional supplements, weight management products, as well as personal care items globally.

Herbalife is a mid-cap stock that hangs out at the intersection of value and growth because it has attributes of both investment styles. At 12.5x forward earnings it is one of the least expensive consumer product stocks. It has also generated 11% earnings growth over the last five years thanks to a healthy net margin.

Speaking of healthy, Herbalife continues to be a beneficiary of increased consumer demand for all things health and wellness during the pandemic. Customers in 90 countries have scooped up vitamins, fitness nutrition, and personal care products to feel and look good during this unusual time. The company has also successfully leaned on physicians and trainers to promote its products online and engage customers in-home workouts to boost the brand.

The Los Angeles-based company is in a position to experience a pickup in top and bottom-line growth. Last month management upwardly revised its 2021 guidance. At the midpoints it is forecasting 10% revenue growth and EPS of $4.50 supported by the economic recovery and increased consumer spending on health products.

Herbalife may be best recognized as the stock that hedge fund investor Bill Ackman challenged and shorted three years back only to buy it back after it ran higher. Look for Herbalife to continue trending higher and soon return to its post-split high above $60.

Is Hologic a Good Stock?

Hologic (NASDAQ:HOLX) is a lesser-known health care company that is off to a strong start in fiscal 2021. The manufacturer of medical equipment and molecular diagnostic devices is coming off a quarter of 89% top line growth driven by strong medical instrument and COVID-19 test sales. Next quarter management is calling for revenue to roughly double year-over-year to at least $1.5 billion.

From an investment standpoint, the most attractive aspect of Hologic's business model is that over half of sales are derived from disposable products. This gives the company a steady source of revenue throughout the year as customers reorder diagnostic testing assays and other consumables.

Strong demand for Hologic products from hospitals, MRI centers, and other health care groups is expected to drive favorable quarterly results as the year progresses. Much of the demand will likely continue to be for its COVID-19 test products, but beyond that the growth opportunities are multifold.

As a health care organization that largely caters to women, Hologic has interesting growth prospects in its Breast Health and GYN Surgical divisions. These businesses have taken a bit of a back seat during the pandemic but remain core long-term growth drivers.

With a forward P/E ratio of just 10.5x Hologic shares are a bargain that should continue to perform well throughout the ups and downs of the economic cycle.

How Does TEGNA Make Money?

Switching gears to the communications sector, television broadcasting and digital media company TEGNA (NYSE:TGNA) is another pillar of reliable customer demand. With 62 local TV stations under its control, it owns the largest stable of local affiliate stations in the country—a footprint that covers roughly two-fifths of the U.S. population.

And with people hanging out at home more than usual these days, TEGNA's 50 million TV viewers represent an attractive captive audience for advertisers. Although much of the programming is dictated by national networks like NBC, ABC, and CBS, TEGNA's exposure to the leading affiliates enables it to connect with local advertisers, its main revenue source.

As you'd expect, much of the recent revenue growth has come from political advertising during the November election. TEGNA's presence in several battleground states is no accident and has certainly helped.

But make no mistake, TEGNA isn't simply an old school TV broadcaster possibly dying a slow death in the era of digital media. Its digital media platforms encompass an additional 35 million viewers that are the next growth channel for the company. Subscription-based revenue growth was impressive in 2020 and will probably stay that way in 2021.

With a forward P/E ratio less than 8x and a 1.6% forward dividend yield, TEGNA is one heck of a value for investors to tune into.

 

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7 Bellwether Stocks Signaling a Return to Normal

Bellwether stocks are considered to be leading indicators about the direction of the overall economy, a specific sector, or the broader market. They are predictive stocks in that investors can use the company’s earnings reports to gauge economic strength or weakness.

The traditional definition of bellwether stocks brings to mind established, blue-chip companies. They are the home of mature brands with consumer loyalty. These may be stocks that aren’t associated with exceptional growth; some may be dividend stocks.

But there’s something different about normal this time around. If it’s true (and I think it is) that the old rules no longer apply, investors need to change the way they think about bellwether stocks. Plus, let’s face it, many stocks that we might consider to be bellwether stocks have already had a bit of a vaccine rally. That means that the easy gains are gone.

With that in mind, we’ve put together this special presentation that highlights seven of what may be termed the new bellwether stocks. These are stocks that investors should be paying attention to as the economy continues to reopen.

One quality of many of these stocks is that they are either negative for 2021 or underperforming the broader market. And that means that they are likely to have a strong upside as the economy grows.

View the "7 Bellwether Stocks Signaling a Return to Normal".


Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Herbalife Nutrition (HLF)2.2$45.75-0.4%N/A17.73Buy$57.40
TEGNA (TGNA)1.9$21.41+2.1%1.31%14.66Hold$15.50
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