In this article, we will look at the 10 best defensive stocks under $50. If you want to explore similar stocks that can help hedge against inflation and come relatively cheap, you can also take a look at the 5 Best Defensive Stocks Under $50.
Has Inflation Peaked?
According to the CPI summary released by the U.S. Bureau of Labor Statistics, the Consumer Price Index for all urban consumers remained unchanged in July, after registering a 1.3% increase in June. The all-items index rose by 8.5% in July year-over-year. The gasoline index declined by 7.7% from June, and the energy index fell by 4.6% from June readings. However, the electricity and food indices continued to rise in July. The all-items less food and energy index rose 5.9% year-over-year in July and the energy index rose 32.9% year-over-year, down from rising 41.6% in June. The food index rose 10.9% year-over-year, the largest 12-month increase since May 1979. It is evident from these numbers that consumers are spending more on staples such as food and utilities and less on discretionary items. The Fed’s rate hikes did bring down inflation in July, but it is still far away from the Fed’s target of 2% or less.
Are We Headed For a Recession?
Although there has not been any official announcement about the U.S. being in a recession from the National Bureau of Economic Research, economists and finance experts are expecting the Fed’s aggressive rate hikes to topple the economy into a recession in either late 2022 or early 2023. Long-held indicators of a recession are two consecutive quarters of negative GDP growth and inverted yield curves. The U.S. economy’s GDP contracted during the first half of 2022 and yields on the two-year treasuries rose above yields on the 10-year treasuries in July, alarming investors.
Where are Investors Putting Their Money?
In the current scenario, with alarmingly high inflation and interest rates, investors are becoming more value and fixed-income oriented. As of August 23, the Nasdaq Composite has fallen by over 20% year-to-date, the S&P 500 is down 13.65% year-to-date, and the Dow has lost 9.77% since the beginning of 2022. In times like these, investors focus on noncyclical and defensive sectors, as they remain resilient to changes in economic cycles. For investors that are looking for stable dividends and robust returns, companies like The Coca-Cola Company (NYSE:KO), The Procter & Gamble Company (NYSE:PG), and Colgate-Palmolive Company (NYSE:CL) serve as the best defensive plays to hedge against inflation.
Our Methodology
To determine the 10 best defensive stocks under $50, we looked for companies that operate in noncyclical sectors such as utilities, consumer staples, and healthcare. We narrowed down our selection to stocks that were trading around $50, had a track record of growing their dividends, and had high dividend yields. Along with each stock, we have mentioned the latest analyst ratings and hedge fund sentiment. We ranked our picks in ascending order based on the number of hedge funds long those stocks.
10 Best Defensive Stocks Under $50
10. OGE Energy Corp. (NYSE:OGE)
Number of Hedge Fund Holders: 13
Share Price as of August 23: $42.01
OGE Energy Corp. (NYSE:OGE) operates as an energy and energy services provider that offers physical delivery and related services for electricity, natural gas, crude oil, and natural gas liquids in the United States. The company generates, transmits, distributes, and sells electric energy. As of August 23, OGE Energy Corp. (NYSE:OGE) is trading at a P/E ratio of 9.11x and shares offer a forward dividend yield of 3.89%.
On August 4, OGE Energy Corp. (NYSE:OGE) announced its financial results for the fiscal second quarter of 2022. The company reported earnings per share of $0.53, beating estimates by $0.09. The company’s revenue for the quarter amounted to $804 million, up 39.19% year-over-year, and beating estimates by $310 million. As of August 23, OGE Energy Corp. (NYSE:OGE) has surged by 18.33% over the past 12 months.
Wall Street is positive on OGE Energy Corp. (NYSE:OGE). On July 5, Mizuho analyst Anthony Crowdell raised his price target on OGE Energy Corp. (NYSE:OGE) to $39 from $38 and reiterated a ‘Neutral’ rating on the shares. On July 18, Barclays analyst Eric Beaumont revised his price target on OGE Energy Corp. (NYSE:OGE) to $41 from $44 and maintained an ‘Equal Weight’ rating on the shares.
At the end of Q2 2022, 13 hedge funds were long OGE Energy Corp. (NYSE:OGE) and held stakes worth $213 million in the company. This is compared to 20 positions in Q1 2022 with stakes worth $229 million.
As of June 30, Zimmer Partners owns roughly 2.85 million shares of OGE Energy Corp. (NYSE:OGE) and is the largest shareholder in the company. The investment covers 2.29% of Zimmer Partners’ 13F portfolio.
9. Sprouts Farmers Market, Inc. (NASDAQ:SFM)
Number of Hedge Fund Holders: 24
Share Price as of August 23: $30.23
Sprouts Farmers Market, Inc. (NASDAQ:SFM) offers fresh, natural, and organic food products in the United States. Shares of Sprouts Farmers Market, Inc. (NASDAQ:SFM) have gained 22.04% over the past 12 months, as of August 23.
On August 3, Sprouts Farmers Market, Inc. (NASDAQ:SFM) reported fiscal Q2 earnings per share of $0.57, outperforming EPS expectations by $0.06. The company’s revenue for the quarter amounted to $1.60 billion, up 4.83% year-over-year, and beating Wall Street estimates by $13.84 million.
At the close of Q2 2022, 24 hedge funds were long Sprouts Farmers Market, Inc. (NASDAQ:SFM) with stakes worth $287 million. This is compared to 24 positions in the previous quarter with stakes worth $311 million.
As of June 30, Renaissance Technologies owns roughly 6.10 million shares of Sprouts Farmers Market, Inc. (NASDAQ:SFM) and is the largest shareholder in the company. The investment covers 0.18% of the quant fund’s 13F portfolio.
Here is what Wasatch Global Investors had to say about Sprouts Farmers Market, Inc. (NASDAQ:SFM) in its first-quarter 2022 investor letter:
“Supermarket chain Sprouts Farmers Markets, Inc. (NASDAQ:SFM) was another holding that benefited from company-specific performance drivers. The stock slumped in 2021 when the company’s efforts to win new customers caused a hit to profit margins. We bought the stock on weakness, and it has bounced back following management’s decision to refocus on margins. We continue to view Sprouts as inexpensive, and we have maintained the position.”
8. Campbell Soup Company (NYSE:CPB)
Number of Hedge Fund Holders: 27
Share Price as of August 23: $50.91
Campbell Soup Company (NYSE:CPB) manufactures and markets food and beverage products in the United States and internationally. The company operates through two segments: Meals & Beverages and Snacks. As of August 23, Campbell Soup Company (NYSE:CPB) has gained 19.73% over the past year and the stock offers a forward dividend yield of 2.88%, which the company supports with free cash flows of $991 million.
Some Wall Street analysts see limited upside to Campbell Soup Company (NYSE:CPB). On August 22, Deutsche Bank analyst Steve Powers raised his price target on Campbell Soup Company (NYSE:CPB) to $50 from $49 but reiterated a ‘Hold’ rating on the shares.
At the end of Q2 2022, 27 hedge funds held stakes in Campbell Soup Company (NYSE:CPB) worth $325 million. This is compared to 22 positions in the preceding quarter with stakes worth $323 million.
In the second quarter of 2022, Renaissance Technologies raised its stake in Campbell Soup Company (NYSE:CPB) by 10%, bringing it to $174 million. The investment covers 0.2% of its 13F portfolio.
Campbell Soup Company (NYSE:CPB) is on investors’ radars as inflation peaks and recession fears hit the markets. Other defensive stocks that investors are racking up shares of include The Coca-Cola Company (NYSE:KO), The Procter & Gamble Company (NYSE:PG), and Colgate-Palmolive Company (NYSE:CL).
7. Hormel Foods Corporation (NYSE:HRL)
Number of Hedge Fund Holders: 27
Share Price as of August 23: $51.00
Hormel Foods Corporation (NYSE:HRL) has been growing its dividends for the past 20 years and has a 5-year dividend growth rate of 9.37% and an annual payout ratio of 55.49%. As of August 23, the stock has gained 11% over the past 12 months and offers a forward dividend yield of 2.05%, which the company supports with free cash flows of $943 million.
On August 9, Hormel Foods Corporation (NYSE:HRL) announced that it’s launching a new strategic operating model, aligning its businesses to be more agile, customer-focused, and market-driven. The company will bring the new model into action by October 31, the beginning of its fiscal 2023. Hormel Foods Corporation (NYSE:HRL) is transitioning to three operating segments: Retail, Foodservice, and International. The company’s new supply chain team will supervise its global supply chain.
On August 23, Stephens analyst Ben Bienvenu raised his price on Hormel Foods Corporation (NYSE:HRL) to $55 from $50 and reiterated an ‘Equal Weight’ rating on the shares.
At the close of the second quarter of 2022, 27 hedge funds were long Hormel Foods Corporation (NYSE:HRL) with stakes worth $435 million. This is compared to 30 hedge funds in Q1 2022 with stakes worth $502 million.
In the second quarter of 2022, Renaissance Technologies raised its stake in Hormel Foods Corporation (NYSE:HRL) by 8%, lifting it to $140.84 million in value. As of June 30, the fund owns roughly 3 million shares of Hormel Foods Corporation (NYSE:HRL) and is the largest shareholder in the company.
6. Conagra Brands, Inc. (NYSE:CAG)
Number of Hedge Fund Holders: 30
Share Price as of August 23: $35.10
Conagra Brands, Inc. (NYSE:CAG) operates as a consumer packaged goods food company in North America. The company operates in four segments: Grocery & Snacks, Refrigerated & Frozen, International, and Foodservice. On July 15, Deutsche Bank analyst Steve Powers revised his price target on Conagra Brands, Inc. (NYSE:CAG) to $32 from $35 and reiterated a ‘Hold’ rating on the shares. As of August 23, Conagra Brands, Inc. (NYSE:CAG) has gained 4.59% over the past 12 months.
On July 22, Conagra Brands, Inc. (NYSE:CAG) declared a quarterly cash dividend of $0.33 per share, up 5.6% from its prior dividend of $0.3125. The dividend is payable on September 1, to shareholders of record on August 3. As of August 23, Conagra Brands, Inc. (NYSE:CAG) shares offer a forward dividend yield of 3.76% and the company has free cash flows of $712.90 million.
Hedge fund sentiment for Conagra was very positive during Q2. At the end of Q2 2022, 30 hedge funds held stakes in Conagra Brands, Inc. (NYSE:CAG) worth $603 million, up from just 22 positions in Q1 with stakes worth $480 million.
In the second quarter of 2022, Citadel Investment Group raised its stake in Conagra Brands, Inc. (NYSE:CAG) by 427% to roughly 4.47 million shares, making the fund the largest shareholder in the company.
Unlike The Coca-Cola Company (NYSE:KO), The Procter & Gamble Company (NYSE:PG), and Colgate-Palmolive Company (NYSE:CL), Conagra Brands, Inc. (NYSE:CAG) is a budget-friendly defensive stock to invest in right now.
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Disclosure. None. 10 Best Defensive Stocks Under $50 is originally published on Insider Monkey.
