Inflation has gone from a transitory problem that would take care of itself to an existential threat that is moving the Federal Reserve to take swift, aggressive action. In January 2022, the Consumer Price Index (CPI) showed inflation in the United States was at its highest level since 1982.
And the market is reacting predictably with what appears to be a shift from risk-on to risk-off assets. This is having a negative effect on many stocks, particularly in the tech sector, that are no longer justifying their extended valuations.
But investors are also seeing a drop in cryptocurrency prices and other speculative assets. This may be a short-term phenomenon, but if you’re an investor looking at how to make money in 2022; it’s time to get a little defensive. But playing defense doesn’t mean accepting mediocre growth. It simply means moving into stocks and sectors that are likely to benefit from high inflation and rising interest rates.
That’s the focus of this special presentation. We invite you to consider these seven risk-off stocks that look like strong candidates to increase in value even as inflation remains high.
Quick Links
- Procter & Gamble
- PepsiCo Inc
- Altria Group
- McDonald’s
- Chevron
- Citigroup
- The Traveler’s Companies
#1 - Procter & Gamble (NYSE:PG)
If investors are indeed moving towards more risk off assets that’s a bullish signal for consumer staples stocks like Procter & Gamble (NYSE:PG). Investors may not be that excited about the 15% growth in the PG stock price over the last 12 months. But investors who have held the stock for the last five years have been rewarded with 88% stock price growth. And that’s to say nothing of the company’s dividend. Procter & Gamble is part of the exclusive Dividend King club and has increased its dividend payout in each of the last 63 years. And over the last three years, the company has posted an average dividend growth of 19.67%.
In the year that ended in June 2021, Procter & Gamble posted year-over-year revenue growth of 7% and earnings growth of 10%. While that growth may not sound that impressive, it serves as a reminder that consumers continue to buy the company’s products even as the economy reopened.
About Procter & Gamble
The Procter & Gamble Company engages in the provision of branded consumer packaged goods worldwide. The company operates through five segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care. The Beauty segment offers conditioners, shampoos, styling aids, and treatments under the Head & Shoulders, Herbal Essences, Pantene, and Rejoice brands; and antiperspirants and deodorants, personal cleansing, and skin care products under the Olay, Old Spice, Safeguard, Secret, SK-II, and Native brands.
Read More - Current Price
- $170.92
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 15 Buy Ratings, 8 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $177.00 (3.6% Upside)
#2 - PepsiCo Inc (NASDAQ:PEP)
Another consumer staples stock that is trading near its 52-week high is PepsiCo (NASDAQ:PEP). The stock has posted a 22% gain over the last 12 months. And over the last five years, the stock has generated a 71% gain for investors. Plus, Pepsi just joined the ranks of the Dividend Kings by raising its dividend for 50 consecutive years.
Pepsi has proven to be a strong recovery stock as live events return. And that momentum should continue to grow throughout 2022. Through the first three quarters of its fiscal year 2021, PepsiCo has posted 13% YOY revenue growth and 16.5% earnings growth. That would have to allay any concerns that investors have about the company’s ability to pass on any cost increases to its consumers and confirm the company’s status as a defensive stock.
It’s too early to tell what impact Pepsi’s entry into the non-fungible token (NFT) market will have on the business. From a marketing perspective, the introduction of the Pepsi Mic Drop Collection of over 1,800 unique generative-style NFTs is an attempt to keep Pepsi relevant to a younger audience.
About PepsiCo
PepsiCo, Inc engages in the manufacture, marketing, distribution, and sale of various beverages and convenient foods worldwide. The company operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East and South Asia; and Asia Pacific, Australia and New Zealand and China Region.
Read More - Current Price
- $158.74
- Consensus Rating
- Hold
- Ratings Breakdown
- 5 Buy Ratings, 10 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $183.92 (15.9% Upside)
#3 - Altria Group (NYSE:MO)
Sin stocks like Altria Group (NYSE:MO) may not be the choice of some investors. However, if you’re looking at risk off stocks that have a defensive upside, MO stock looks like a solid choice. The last five years have been disappointing for shareholders. But the stock does look like it found a bottom at the onset of the Covid-19 pandemic. And since hitting a low of $34.28 in March 2020, MO stock has generated a 46.8% return for investors.
As with the other consumers staples products in this presentation, Altria has been able to pass along a higher cost to consumers. You could say cynically that this is a result of the addictive quality of the company’s products. But facts are stubborn things. And for now that’s working in the favor of Altria Group.
And don’t overlook the fact that the company is attempting to pivot away from cigarettes. The company’s “Moving Beyond Smoking” initiative is putting its emphasis on oral tobacco and e-vapor products.
About Altria Group
Altria Group, Inc, through its subsidiaries, manufactures and sells smokeable and oral tobacco products in the United States. The company offers cigarettes primarily under the Marlboro brand; large cigars and pipe tobacco under the Black & Mild brand; moist smokeless tobacco and snus products under the Copenhagen, Skoal, Red Seal, and Husky brands; oral nicotine pouches under the on! brand; and e-vapor products under the NJOY ACE brand.
Read More - Current Price
- $55.98
- Consensus Rating
- Hold
- Ratings Breakdown
- 2 Buy Ratings, 3 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $51.33 (8.3% Downside)
#4 - McDonald’s (NYSE:MCD)
The last of the consumer staples stocks we’re recommending is McDonald’s (NYSE:MCD). Investors in MCD stock are truly benefiting from a stock that delivers the best of both worlds. In the last 12 months, the stock is up 23% and that’s despite the fact that, in many locations, the company is still limited to drive-through traffic only.
However, the key takeaway is that the company continues to grow earnings and revenue on both a YOY and a year-over-two-year span. And while MarketBeat’s Thomas Hughes points out that the pace of that growth may be slowing, its full-year YOY revenue growth projections are larger than some of its competitors make all year.
That means the company is managing to seamlessly pass along any cost increases and, for the time being, overcoming any supply chain challenges. Add in a tasty dividend that the company has grown for 46 consecutive years and you have a stock that should be on every investor’s shopping list in 2022.
About McDonald's
McDonald's Corporation operates and franchises restaurants under the McDonald's brand in the United States and internationally. It offers food and beverages, including hamburgers and cheeseburgers, various chicken sandwiches, fries, shakes, desserts, sundaes, cookies, pies, soft drinks, coffee, and other beverages; and full or limited breakfast, as well as sells various other products during limited-time promotions.
Read More - Current Price
- $290.89
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 18 Buy Ratings, 12 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $319.46 (9.8% Upside)
#5 - Chevron (NYSE:CVX)
Turning our attention to energy stocks brings us to Chevron (NYSE:CVX). Energy stocks were among the biggest losers in 2020. In fact at one point, oil prices briefly went negative. But the outlook for energy stocks greatly improved in 2021. And Morgan Stanley (NYSE:MS) analysts believe that oil prices will rise to $90 a barrel in the second half of the year.
That’s reason enough to choose a stock with a strong balance sheet as you’ll find with Chevron. But many energy investors are eyeing companies that offer a “both/and” approach. This means that they want to buy energy stocks that can serve as both a best-in-class oil and gas stock as well as a participant in a clean energy future.
To that end, Chevron is making strategic renewable energy investments. In the short term, the company is investing in renewable natural gas, renewable diesel and sustainable aviation fuel. And long-term Chevron is making investments in hydrogen and carbon capture technology.
About Chevron
Chevron Corporation, through its subsidiaries, engages in the integrated energy and chemicals operations in the United States and internationally. The company operates in two segments, Upstream and Downstream. The Upstream segment is involved in the exploration, development, production, and transportation of crude oil and natural gas; processing, liquefaction, transportation, and regasification of liquefied natural gas; transportation of crude oil through pipelines; transportation, storage, and marketing of natural gas; and carbon capture and storage, as well as a gas-to-liquids plant.
Read More - Current Price
- $161.30
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $174.93 (8.5% Upside)
#6 - Citigroup (NYSE:C)
The Federal Reserve is now signaling there may be as many as four rate increases in 2022. While that may be negative for equities in general, it’s likely to be good news for financial stocks. Citigroup (NYSE:C) is one stock that stands to benefit. Analysts give the stock a 12-month price target that gives investors a 17% upside. And for the valuation crowd, Citigroup has one of the lowest P/E ratios in the banking sector at 6.33.
In the short term, C stock may be under pressure as analysts attempt to forecast the effect on earnings after the company announced it will exit its consumer banking business in Mexico which accounted for $3.5 billion of revenue in the first three quarters of 2021. At least initially, analysts believe the move will benefit the firm’s banking operations.
However, with interest rates on the rise, the company should be able to continue to increase shareholder value through increasing dividends and share repurchases. This is something that the company has suggested they would do more of once the Federal Reserve’s regulations were lifted.
About Citigroup
Citigroup Inc, a diversified financial service holding company, provides various financial product and services to consumers, corporations, governments, and institutions worldwide. It operates through five segments: Services, Markets, Banking, U.S. Personal Banking, and Wealth. The Services segment includes Treasury and Trade Solutions, which provides cash management, trade, and working capital solutions to multinational corporations, financial institutions, and public sector organizations; and Securities Services, such as cross-border support for clients, local market expertise, post-trade technologies, data solutions, and various securities services solutions.
Read More - Current Price
- $68.28
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 11 Buy Ratings, 5 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $73.00 (6.9% Upside)
#7 - The Traveler’s Companies (NYSE:TRV)
The last of the risk-off stocks on our list is The Travelers Companies (NYSE:TRV). Although insurance stocks can be affected by external events particularly due to acts of nature, everybody needs insurance. That’s what makes insurance stocks among the steadiest performers in the market. And TRV stock fits that description.
In the last 12 months, the stock has delivered 1 14% return. But over the last five years, that return jumps to 39%. And investors have enjoyed an even higher total return with a dividend that the company has increased in each of the last 20 years.
Of all the stock’s on this list, this is the only one that a consensus of analysts followed by MarketBeat lists as a Hold. However, as investors look for stocks to hedge against risk they could do worse than to look at a stock that has over 82% institutional ownership.
About Travelers Companies
The Travelers Companies, Inc, through its subsidiaries, provides a range of commercial and personal property, and casualty insurance products and services to businesses, government units, associations, and individuals in the United States and internationally. The company operates through three segments: Business Insurance, Bond & Specialty Insurance, and Personal Insurance.
Read More - Current Price
- $257.12
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 13 Hold Ratings, 4 Sell Ratings.
- Consensus Price Target
- $247.90 (3.6% Downside)
The classic definition of a risk-off market is one in which investors flee to safe-haven assets like bonds or gold. There’s no evidence that is happening in a large way. Stocks continue to be the place for investors to find growth. But many analysts are using the phrase risk-off to describe a change in risk tolerance. And this is typified by a shift from growth stocks to value stocks. That is a more apt description of what’s occurring in the market today.
Investors are becoming uncertain of economic growth. What affect will interest rate hikes have on corporate earnings? What will the mid-term elections mean for monetary and economic policy?
Let’s give credit where credit is due. Many retail investors have done a great job of playing offense during this bull market. But many of those same investors have never experienced a bear market of any consequence. It’s time to play defense, which simply means it’s time to reassess your level of risk. And as you do, stocks such as the ones in this presentation can help your portfolio weather whatever comes next.
More Investing Slideshows:
