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2 Defensive Stocks That Can Weather the Market Volatility

The earnings season comes at a fraught moment for Wall Street equities, which have started 2022 with volatile trading. Headwinds pushing on the market include the rapid spread of the Omicron corona variant as well as continuing supply chain snarls. The latter plus the Biden Administration’s high spending and fiscal stimulus policies, are all feeding into stubbornly high inflation.

And that, in turn, is feeding expectations for a Federal Reserve interest rate hike. Markets had already been expecting that for later in the year, but now it’s seen as coming sooner rather than later. Analysts are putting a 75% chance on the first rate hike to come in March. Bond yields are already rising in anticipation, and the 10-year Treasury note is now above 1.7%, its highest level in 10 months.

But just because markets are facing a tough time, doesn’t mean that every stock is retreating. Just as some equities will fare poorly in a bullish time, so some will fare well in a bearish turn.

Using TipRanks’ database, we pinpointed two such stocks that are showing a similar profile: strong gains over the past year, but followed by continued gains so far in 2022. These are Strong Buy-rated stocks, according to the analyst community, and each shows a considerable upside potential. Let’s take a closer look.

Chesapeake Energy (CHK)

We’ll start with an Oklahoma-based hydrocarbon exploration company, Chesapeake Energy. This company has operations in four states, and its drilling activities include ops in some of the major names in the US energy sector: the Marcellus and Haynesville shale formations, the Eagle Ford shale, and the Powder River Basin. Chesapeake has activities on almost 1.2 million acres, and currently has a total of 11 active rigs. That may not sound like much, it produces some 436,000 barrels of oil equivalent daily, of which 80% natural gas.

Energy prices have been rising in the past year, forming a major component of the inflationary pressures the have made headlines in recent months, and have allowed the company to continue seeing positive revenue and earnings despite lower production totals. In its last reported quarter, the third of last year, the company showed an unrestricted cash balance of $849 million and a free cash flow of $265 million. Chesapeake has approximately 800 billion barrels of oil equivalent in proven reserves, with some two-thirds of that total being natural gas.

In the past year, CHK shares have climbed 64%. The gains have come steadily over the past 12 months, and the beginning of this year saw the stock gain 12%.

The positive net income and the high cash balance have allowed Chesapeake to bump up its dividend payment. The company’s most recent dividend declaration, for 43.75 cents per share, was paid out in November. The payment annualizes to $1.75 per share, and gives a 2.5% yield. The management has plans to add a variable supplement to the dividend starting in March of this year.

RBC’s 5-star analyst Scott Hanold sees the company’s cash flow as the key point here, writing: “CHK is positioned to generate peer-leading free cash flow over the next several years while maintaining relatively flat total production volumes. Returning cash to shareholders is a main focus as evidenced by its recently initiated competitive fixed dividend and announced variable dividend that becomes payable in early 2022. The FCF outlook remains robust and should more than support the base and variable dividends along with balance sheet improvements.”

To this end, Hanold gives CHK shares an Outperform (i.e. Buy) rating, and his $88 price target implies a 12-month upside potential of ~22%. (To watch Hanold’s track record, click here)

Overall, this is a stock that Wall Street likes, as evidenced by the unanimous Strong Buy consensus rating based on 8 positive reviews. Shares are trading for $72.02 and their average target of $92.75 is even more bullish than the RBC view, suggesting ~29% one-year upside. (See CHK stock forecast on TipRanks)

LPL Financial Holdings (LPLA)

With some stocks, you don’t need to say so much; the upbeat facts are their one story. The next stock on our list, LPL Financial, is one of these. This company is a financial advisor, retail broker, and financial services company and has a reputation as the largest independent broker-dealer in the US. LPL boasts advisory and brokerage assets totaling $1.13 trillion, a total that includes some $51 billion client cash balances.

LPL’s business is both profitable and expanding. The company’s earnings were last reported at $1.77 per share, up 23% year-over-year, and revenues in 3Q21 came in at $2.02 billion, up more than 38% from the prior year’s third quarter. As of the end of Q3, organic new assets were $27 billion, and the 12-month total, $110 billion, showed 14% annualized growth.

This kind of growth always attracts investors, and LPL’s share price reflects that. The stock has gained 52% over the past twelve months – and even though 2022 is less than two weeks old, it is up 12% so far this year.

LPL has long been in the eye of 5-star analyst Steven Chubak, of Wolfe Research. Chubak doesn’t pull punches on his accolades when he writes of the company: “Simply put, LPLA checks all the boxes, with arguably the most underappreciated rate optionality, the best organic growth profile, and a robust EPS growth algorithm… LPLA shares had a great run in 2021… but we still see further runway…”

These comments support Chubak’s $235 price target, suggesting a 31% upside for the coming year, and his Buy rating on the shares. (To watch Chubak’s track record, click here)

It’s clear that Wall Street agrees with the upbeat outlook on LPL, as the company’s 9 recent analyst reviews include 7 to Buy and only 2 to Hold, for a Strong Buy consensus rating. The stock is selling for $179.57 and its $209.13 average price target indicates room for ~16% share appreciation in the next 12 months. (See LPLA stock forecast on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.