WBA - Sleep-at-night stocks for those hedging or risk averse

2023-03-08 06:41:29 ET

Fed Chairman Jerome Powell undercut pivot expectations and dented stocks and bonds in his recent Congressional testimony.

The S&P 500 ( SP500 ) ( NYSEARCA: SPY ), Nasdaq ( COMP.IND ), Nasdaq 100 ( NDX ) ( QQQ ) and Dow ( DJI ) ( DIA ) all fell more than 1% yesterday. The S&P ( IVV ) ( VOO ) is still above its 200-day moving average of 3,940 and survived a double test of critical technical levels last week, according to Morgan Stanley.

But with further inversion of the yield curve (with the 2s10s more than 1 percentage point apart for the first time since 1981) the soft landing scenario becomes harder to manifest.

BofA ran three screens for "sleep at night" stocks.

The high-quality defensives scree n includes S&P 500 stocks "in the bottom quintile by GDP data" and are ranked B+ or above in S&P by S&P Quality Rank.

1. MarketAxess Holdings ( MKTX ), GDP beta -0.60, S&P quality rank A
2. CarMax ( KMX ), -0.70, B+
3. Activision Blizzard ( ATVI ), -0.60, A-
4. PulteGroup ( PHM ), -0.54, B+
5. AbbVie ( ABBV ), -0.44, A-
6. Tractor Supply ( TSCO ), -0.53, A+
7. Equifax ( EFX ), -0.45, B+
8. FleetCor ( FLT ), -0.38, B+
9. Kroger ( KR ), -0.32, A-
10. McCormick & Co. ( MKC ), -0.29, A-
11. Lowe's ( LOW ), -0.31, A+
12. Lennar ( LEN ), -0.31, A
13. AutoZone ( AZO ), -0.30, B+
14. Humana ( HUM ), -0.28, A-
15. Chipotle ( CMG ), -0.28, B+

The consistent dividend growers screen ranks S&P stocks that have consistently growth their dividends each year from 1981-2022:

1. Walmart ( WMT ), dividend growth CAGR over period 19.1%
2. Medtronic ( MDT ), 15.2%
3. McDonald's ( MCD ), 14.5%
4. Automatic Data Processing ( ADP ), 13.2%
5. Walgreens Boots Alliance ( WBA ), 12.8%
6. Sherwin-Williams ( SHW ), 12.6%
7. Archer-Daniels-Midland ( ADM ), 12.3%
8. Target ( TGT ), 11.4%
9. J&J ( JNJ ), 11.4%
10. Hormel ( HRL ), 11.2%
11. Nordson ( NDSN ), 10.5%
12. PepsiCo ( PEP ), 10.4%
13. Becton, Dickinson ( BDX ), 10.3%
14. W.W. Grainger ( GWW ), 10.1%
15. Coca-Cola ( KO ), 9.2%

"In downturns, low volatility stocks typically outperform, but we see several differences this cycle vs. prior downturns (e.g., persistent inflation, healthy consumer/corporate balance sheets, etc.), where certain cyclicals can still outperform, especially the ones that exhibited lower volatility and improved quality in recent years," strategist Savita Subramanian wrote in a note.

In the new low volatility stocks screen , BofA identified companies that saw lower 6-month and 1-year betas than the 5-year beta, have a lower beta than 1, and saw the biggest decline in 6-month beta vs. the 5-year beta:

1. Humana ( HUM ), 5-year beta 0.83, 1-year beta 0.47, 6-month beta 0.27, change vs. 5-year beta -68%
2. McKesson ( MCK ), 0.77, 0.39, 0.28, -64%
3. Cigna ( CI ), 0.94, 0.52, 0.38, -60%
4. Lamb Weston ( LW ),  0.84, 0.65, 0.37, 56%
5. Elevance Health ( ELV ), 0.93, 0.53, 0.42, 55%
6. Molina Healthcare ( MOH ), 0.88, 0.50, 0.40, 55%
7. Activision Blizzard ( ATVI ), 0.64, 0.31, 0.30, 54%
8. W.R. Berkeley ( WRB ), 0.86, 0.49, 0.40, 54%
9. Cardinal Health ( CAH ), 0.80, 0.50, 0.38, 52%
10. UnitedHealth ( UNH ), 0.90, 0.55, 0.44, 51%
11. Incyte ( INCY ), 0.73, 0.55, 0.36, 50%
12. Globe Life ( GL ), 1.04, 0.66, 0.53, 49%
13. Merck ( MRK ), 0.54, 0.28, 0.28, 49%
14. Ulta Beauty ( ULTA ), 1.13, 0.95, 0.58, 48%
15. Bristol-Myers Squibb ( BMY ), 0.54, 0.29, 0.28, 48%

Screen for dividends and dividend grades .

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