Benzinga - by Zacks, Benzinga Contributor.
Expectations of multiple interest rate cuts in 2024 had faded long back and now the Federal Reserve has almost assured that it isn't going to happen anymore.
On Jun 12, Federal Reserve Chairman Jerome Powell said in the post-FOMC meeting statement that the central bank sees the possibility of only a single rate cut this year, sharply down from three rate cuts hinted earlier this year.
This came as the Federal Reserve kept interest rates unchanged in its June FOMC meeting in its current range of 5.25-5.5%.
Although inflation slowed somewhat in April and maintained its declining pace in May, the Federal Reserve maintains a hawkish stance as it is still sharply higher than the Fed's 2% target. Powell acknowledged that inflation has declined sharply over the past year but remains elevated.
Powell's comments didn't impact investors much as it was expected that the Federal Reserve would keep interest rates unchanged. Also, markets started pricing in a single 25 basis point rate cut this year over the past few weeks. In fact, several economists predicted no rate cuts this year.
Also, the latest "dot plot" from the FOMC meeting suggested a potential total rate cut of 1% by 2025. Consequently, the terminal rate of the Fed funds rate is currently projected to reach 4.1% by the end of 2025.
However, the Federal Reserve's forecast for the long-term interest rate, which serves as a benchmark that neither stimulates nor constrains growth, has been revised up to 2.8% from an earlier projection of 2.6%. This indicates that Fed officials are leaning toward a perspective of maintaining higher interest rates for a longer period.
Our Picks Given this situation, it would be wise to invest in defensive stocks like utilities and consumer staples. Five such stocks are Atmos Energy Corporation (NYSE: ATO), Pinnacle West Capital Corporation (NYSE: PNW), California Water Service Group (NYSE: CWT) Utz Brands, Inc. (NYSE: UTZ) and PepsiCo, Inc. (NASDAQ: PEP).
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).
Atmos Energy Corporation, along with its subsidiaries, is engaged in the regulated natural gas distribution and storage business. ATO serves nearly 3.4 million customers in more than 1,400 communities in eight states, from the Blue Ridge Mountains in the East to the Rocky Mountains in the West. Atmos Energyoperates more than 72,000 miles of transmission and distribution lines as well as 5,700 miles of interstate pipelines.
Atmos Energy has an expected earnings growth rate of 9.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the last 60 days. ATO presently has a Zacks Rank #2. Atmos Energy has a beta of 0.67 and a current dividend yield of 2.77%.
Pinnacle West Capital Corporation provides electricity services (wholesale or retail) in the state of Arizona through its subsidiaries. PNW is involved in the generation, transmission and distribution of electricity from coal, nuclear, gas, oil and solar.
Pinnacle West Capital Corporation's has an expected earnings growth rate of 8.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 60 days. PNW currently carries a Zacks Rank #2. Pinnacle West Capital Corporation has a beta of 0.50 and a current dividend yield of 4.59%.
California Water Service Group is one of the largest investor-owned water utilities in the United States. CWT has six subsidiaries — California Water Service, Washington Water Service Company, New Mexico Water Service Company, Hawaii Water Service Company, CWS Utility Services and HWS Utility Services.
California Water Service Group has an expected earnings growth rate of 246.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 40% over the last 60 days. CWT currently carries a Zacks Rank #1. California Water Service Group has a beta of 0.48 and a current dividend yield of 2.34%.
Utz Brands, Inc. manufactures a diverse portfolio of salty snacks under popular brands including Utz, Zapp's, Golden Flake, Good Health, Boulder Canyon, Hawaiian Brand) and TORTIYAHS!. UTZ, formerly known as Collier Creek, is based in New York, United States
Utz Brands has an expected earnings growth rate of 26.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.9% over the last 60 days. UTZ currently carries a Zacks Rank #2. Utz Brands has a beta of 0.99 and a current dividend yield of 1.29%.
PepsiCo, Inc. is one of the leading global food and beverage companies. PEP's complementary brands/businesses include Frito-Lay snacks, Pepsi-Cola beverages, Gatorade sports drinks, Tropicana juices and Quaker foods. PepsiCo serves customers in more than 200 countries and territories.
PepsiCo has an expected earnings growth rate of 7.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 60 days. PEP currently has a Zacks Rank #2. PepsiCo has a beta of 0.52 and a current dividend yield of 3.31%.
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