We recently compiled a list of the 10 Best Defensive Stocks To Buy Now. In this article, we are going to take a look at where Vistra Corp. (NYSE:VST) stands against the other defensive stocks.
Defensive stocks tend to remain stable and less affected by economic downturns. These companies operate in sectors that provide essential goods and services, which people need regardless of the economic climate. Defensive stocks mostly include stocks of companies among utilities, consumer staples, and healthcare sectors as they provide basic necessities of life. Companies in these sectors often show less volatility, and often provide steady dividends. They usually offer a safer investment choice during periods of market uncertainty.
US Stocks Surge But Experts Remain Cautious
U.S. stocks are having a great time, which is owed to strong economic data that has reassured investors. The S&P 500 and Nasdaq 100 have seen significant gains, as they are up 4.3% and over 6% over the last 5 days on August 15, respectively. The global markets have also recovered from recent losses, and the US broader market is back from the losses it faced in the first week of August. The investor sentiment remains strong and U.S. equities are seeing continuous inflows. Additionally, Fed officials are hinting at potential rate cuts which support optimism that the U.S. economy is on track for a soft landing.
However, some experts are still concerned about the future of the US economy and markets and hold a more conservative view. According to a July report by J.P Morgan, recent market trends have benefited large, high-quality companies, especially in tech and AI, which have resulted in high market concentration. However, maintaining this momentum in the second half of 2024 could be difficult due to high valuations and investor positioning. The report says that while U.S. market volatility is currently low, it could rise if conditions change.
According to Bruce Kasman, global growth is steady at 2.4%, with improved recoveries in Western Europe and emerging markets, along with a rebound in the manufacturing sector. Despite this, core global inflation is projected to remain around 3% in 2024, which could limit the potential for policy easing. Kasman warned that achieving inflation control and rate normalization might weaken demand and could interact with political factors to cause further inflation and central bank tightening.
Leon Cooperman’s Perspective on the Current Conditions
On August 15, Omega Advisors chairman and CEO, Leon Cooperman shared his perspective on the current economic outlook with CNBC Money Movers. Cooperman expressed a cautious outlook on the economy, which is driven by two main factors. First, he is alarmed by the rapid increase in the U.S. national debt, which has doubled from about $17 trillion in 2017 to approximately $34-35 trillion today. He said that this level of debt growth, which outpaces economic growth, is unsustainable and could lead to a fiscal crisis. However, the exact timing of such a crisis is uncertain. He further added that neither political party is addressing this looming issue.
Secondly, Cooperman compared today’s market conditions to past periods of financial excess, such as the Nifty 50 era in the 1970s, when companies with extremely high valuations eventually went bankrupt. He noted that during those times, the 10-year bond yield was 6.5%, much higher than the current rate of around 3.9%. He believes that if the current bond rate is appropriate, market valuations aren’t too high. However, he suspects that interest rates are too low and anticipates a rise in long-term rates, particularly the 10-year Treasury yield.
While he expects the Federal Reserve to cut short-term rates, which could ease borrowing costs, he believes long-term rates will increase, leading to a decline in bond prices and potentially putting downward pressure on stock valuations. If long-term rates rise significantly, it could make the stock market less attractive and could possibly result in a market decline.
Even though the current year has shown healthy markets with a couple of corrections, Leon Cooperman’s expectations from the markets cannot be ignored. Cooperman has a track record of being one of the most successful investors of the past several decades. If they hold out to be true, investors might look toward more defensive sectors of the market.
Our Methodology
For this article, we used stock screeners to identify over 50 large to mega-cap stocks from defensive sectors such as consumer staples, utilities, and healthcare. We narrowed our list to 10 stocks with positive analyst sentiment and the highest average analyst price target upside as of August 16.
Solar panel workers installing a new farm for clean energy generation.
Vistra Corp. (NYSE:VST)
Stock Price as of August 16: $80.14
Average Analyst Price Target Upside as of August 16: 46.62%
Vistra Corp. (NYSE:VST) is a U.S.-based prominent independent power producer, operating across 20 states and the District of Columbia. It operates as an integrated retail electricity and power generation company and delivers essential energy resources to households, businesses, and communities. It is among our best defensive stocks to buy now.
The company’s generation assets total around 37,000 megawatts and include a broad mix of energy sources such as natural gas, nuclear, coal, solar, and battery storage. Additionally, its retail operations involve selling electricity and natural gas directly to consumers, while it also participates in the wholesale electricity market.
Vistra (NYSE:VST) is well-positioned to thrive in the evolving energy landscape, particularly as global electricity consumption continues to climb. According to the International Energy Agency (IEA), data centers, which used 460 terawatt-hours (TWh) of electricity in 2022, are expected to see their energy needs double to over 1,000 TWh by 2026.
In the U.S., which houses a significant share of these data centers, electricity use is forecasted to increase from 200 TWh in 2022 to 260 TWh by 2026. This surge in demand represents about 6% of the nation’s total power consumption. The company is well-equipped to meet this rising demand due to its diverse energy generation portfolio. Its energy source mix gives it an edge as the energy market shifts toward lower-carbon solutions.
Vistra’s (NYSE:VST) acquisition of Energy Harbor, which brought nuclear power assets into its fold, improves its ability to create direct power purchase agreements with major clients, which can further strengthen its market presence.
With its strong brands like TXU Energy and a well-diversified energy generation portfolio, the company remains a formidable player in the energy sector. It is set to capitalize on the increasing power demand, driven by its mix of sustainable and efficient energy sources, making sure it stays competitive and continues to grow.
As per the consensus opinion of 13 analysts that have covered Vistra (NYSE:VST), it has a consensus Buy rating. The average price target of $117.50 represents an upside of 46.62% from the current levels, as of August 16.
Meridian Hedged Equity Fund stated the following regarding Vistra Corp. (NYSE:VST) in its first quarter 2024 investor letter:
“Vistra Corp. (NYSE:VST) is an integrated retail electricity and power generation company based in Irving, Texas. It operates in 12 states and six of the seven competitive markets in the U.S. Vistra’s retail brands serve approximately 2.9 million customers and its power generation fleet totals approximately 41,000 megawatts of natural gas, nuclear, coal, and solar facilities. Vistra was a top performer in the strategy over the past quarter, with its shares rallying over 80%. A key driver has been the thesis that the projected growth of power-hungry data centers, spurred by the rise of generative AI, will increase electricity demand and power prices. This is expected to significantly benefit incumbent power generators like Vistra. The company’s efficient generation portfolio, especially its nuclear and natural gas plants, is well-positioned to capitalize on rising demand, scarcity pricing, and ancillary services in the Texas power market. Vistra is also pursuing opportunities to potentially sign high-margin power offtake agreements directly with data center customers for its nuclear plants, similar to a recent deal by peer Talen Energy and Amazon. We continue to like Vistra’s strong free cash flow generation supporting continued share buybacks and debt reduction, synergies from the recent Energy Harbor acquisition, and a favorable power market backdrop with rising spark spreads. We trimmed the stock following its strong performance during the period.”
Overall VST ranks 2nd on our list of the best defensive stocks to buy. While we acknowledge the potential of VST as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than VST but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
