As the odds of a 2023 recession rise, many investors have been rotating out of risk-on stocks and back into cash and defensive dividend stocks. Though it’s difficult to gauge the severity of the coming economic damage, one can’t help but notice the pain that’s already been inflicted on the broader stock market.
With such speculation drained from the markets, dividend payers with “Strong Buy” analyst ratings seem worthy of a second look. In this piece, we’ll use TipRanks’ Comparison Tool to have a closer look at three low-beta dividend stocks that are more than capable of dampening the downside.
Coca-Cola (KO)
Coca-Cola is the ultimate consumer staple stock that tends to be less influenced by the state of the broader economy. In good times and bad, people tend to drink plenty of Coke. With a mild recession, consumers could gravitate away from fancy dine-in restaurants that serve sparkling water and toward fast-food firms that serve classic Coke.
Year-to-date, shares of KO are up 7%, while the broader market plunged into a vicious bear market. The relative outperformance could easily continue as we march head-on into a consumer recession.
Though Coca-Cola has fared incredibly well in 2022, it’s still had to grapple with the impact of inflation. As inflation headwinds pass, Coca-Cola seems poised for a decent run as it looks to move into “growthier” beverages such as ready-to-drink coffee and “healthy” flavored drinks.
With impressive emerging market exposure, a 2.8% dividend yield, and one of the strongest brands on the planet, investors can sleep well at night with the name. There’s a reason Warren Buffett loves the stock and will probably never Sell.
The only knock against the stock at current levels is the rich valuation. Coke stock trades at 26.3 times trailing earnings and 6.7 times sales. That’s pricier than certain imploded tech stocks. Indeed, defensive names come at a premium these days.
Overall, Wall Street is clearly interested in KO, as shown by the 17 analyst reviews the stock has picked up in recent months. These break down to 13 Buys and 4 Holds, for a Strong Buy consensus. The average price target of $70.94 suggests an upside of ~13.50% from the current share price of $62.50. (See KO stock forecast on TipRanks)
McDonald’s (MCD)
McDonald’s is another defensive dividend stock that’s held up far better than the S&P 500 this year. Like Coca-Cola, the stock boasts a rather lofty multiple at 26.3 times trailing earnings and 7.9 times sales.
McDonald’s trades at a tiny premium to Coke – at least on a price-to-sales basis. With such a great management team that’s made the brand cool again with younger consumers, McDonald’s has more room to run in the face of a recession.
With its Russian operations now sold, the firm is ready to move on with intriguing new product offerings, creative promos, and continued innovation in various technologies.
The Grand Big Mac, enhanced value offerings, and beefy ad spending could help McDonald’s make the most of the coming economic slowdown. When times get tough, value triumphs – and few firms can offer better bang per buck than McDonald’s.
Turning to Wall Street, many analysts have been quick to downgrade stocks across the board. McDonald’s is one of few defensive names that may be in for upgrades as the bar is lowered across the entire market.
Analysts are very bullish. 21 Buys and two Hold ratings were given in the past three months. Based on those ratings, the average McDonald’s price target is $280.26, implying ~10% upside potential. (See MCD stock forecast on TipRanks)
Walmart (WMT)
Speaking of value, it’s tough to top the value proposition of Walmart, which continues to offer the best prices for a wide range of goods. As consumer sentiment sinks, low-cost retailers like Walmart could take share away from its pricier upscale rivals that may have fared better in 2021.
Inflation is hurting Walmart these days, with the pandemic still causing margins to drag. Such issues are temporary and could be resolved as soon as a few quarters. The management team is top-notch with its ability to steer through inflation storm clouds without startling the consumer with drastic price hikes.
As a recession strikes, look for the firm to push its Walmart+ service more aggressively. Retail is a wildly competitive place to be. A sticky subscription service could be the key to standing out from the crowd.
At writing, the stock trades at 26.4 times trailing earnings and 0.6 times sales. With a 0.52 beta, WMT stock is a great way to weave through a continuation of the market sell-off.
Overall, Wall Street is bullish, based on 22 Buys and five Holds assigned in the past three months. The average Walmart price target is $156.11, implying 24.5% upside. (See WMT stock forecast on TipRanks)
Conclusion
There’s no shame in paying a bit more to play defense with a potential recession in the cards. The following three stocks have low betas, rich dividends, and capable enough managers to move through a period of economic weakness.
Of the three Strong Buy-rated stocks, Wall Street expects the most from Walmart over the year ahead.
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 information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. At the time of publication the writer did not have a position in any of the securities mentioned in this article.
