Stock Analysis & Ideas

KO, NEE, LW: These Stocks Could Hedge Your Bets against Rising Bond Yields

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The 10-year U.S. Treasury yield is at a decade high, implying that the stock market will remain highly volatile with further correction on the horizon. However, KO, NEE, and LW stocks could act as solid hedges amid rising volatility.

The U.S. Treasury yields continue to rise (the 10-year Treasury yield touched 3.51% on Monday — the highest level in over a decade), posing challenges for the equity market. Rising yields will increase the cost of capital, dragging valuations lower for stocks. Amid rising bond yields, investors could turn to low-beta stocks like Coca-Cola (NYSE:KO), NextEra Energy (NYSE:NEE), and Lamb Weston Holdings (NYSE:LW) to hedge their portfolio against volatility. 

These low beta stocks (beta of less than 1) remain relatively immune to large market swings, thus minimizing a portfolio’s overall risk. For instance, this year, KO, NEE, and LW stocks fared better than the S&P 500 Index (SPX). 

So far this year, KO and LW stocks are up 3.6% and 24.4%, respectively. Meanwhile, NEE stock has lost 5.5% against the S&P 500’s decline of about 18.6%. With this in mind, let’s understand how investors could protect their investment portfolios with KO, NEE, and LW stocks.

Coca-Cola (NYSE: KO)

Shares of beverage giant Coca-Cola carry a beta of 0.46, implying that it is less volatile. Investors should note that Coca-Cola’s financial performance remained resilient in the first half of 2022, despite a significant increase in cost and currency headwinds. Though suspension of operations in Russia could remain a slight drag on the company’s sales and margins, strong organic growth is expected to support these metrics. 

Thanks to its resilient earnings base, Coca-Cola has been able to raise its dividend for 60 consecutive years. KO stock offers a dividend yield of 2.9%.   

Is KO a Good Stock to Buy Now? 

Given the uncertainty and rising bond yields, KO could prove to be an ideal stock to lower the volatility in your portfolio. KO stock commands a Strong Buy consensus rating on TipRanks, which is based on nine Buys and three Holds. KO’s average price forecast of $70.25 implies upside potential of 17.1%. 

KO stock sports an Outperform Smart Score of nine out of 10 on TipRanks, mirroring its strong potential to beat the market. 

NextEra Energy (NYSE:NEE)

NextEra Energy, a leading electric utility holding company, enjoys a beta of 0.74. Its rate-regulated assets generate resilient earnings and cash flows that support its stock and dividend payments even amid challenges. The company is well-positioned to deliver consistent earnings growth over the next several years, led by new assets placed into service, strong renewables and storage origination, and an increase in average regulatory capital employed. 

Thanks to the strength in its business, NextEra expects its EPS to increase at a CAGR of 10% through 2025. Moreover, it plans to grow its dividend 10% annually through 2024. 

Is NextEra Energy a Buy, Sell, or Hold?

On TipRanks, NextEra Energy stock commands a Strong Buy consensus rating based on 11 Buys and three Holds. Further, NEE’s average price forecast of $98 implies upside potential of 12.9%. NEE stock’s dividend yield stands at 2%. The company enjoys a ‘Perfect 10’ Smart Score on TipRanks, implying that NEE stock could easily outperform the market. 

Lamb Weston Holdings (NYSE:LW)

Lamb Weston is a food processing company and a leading supplier of frozen potato and vegetable products. It has a low beta of just 0.15. 

Strong product demand, benefits from the easing of COVID-19 restrictions (which is driving restaurant traffic), and productivity measures continue to support Lamb Weston’s sales and profits. 

Further, its ability to increase prices and cost control initiatives help the company mitigate the impact of inflation and higher packaging, labor, and transportation costs. Lamb Weston expects higher pricing and strong demand for frozen potato products to support its financials. Further, it could continue to enhance shareholders’ returns through share repurchases and regular dividend payments. 

Is LW Stock a Buy?

Based on four unanimous Buy recommendations, LW stock carries a Strong Buy consensus rating on TipRanks. LW’s average price prediction of $90.25 implies upside potential of 15.7%.

LW stock has a dividend yield of 1.3% and carries a Neutral Smart Score of seven out of 10 on TipRanks.

Bottom Line

Amid rising bond yields, the stock market could stay volatile. However, the companies mentioned above have resilient businesses, with the ability to grow earnings and boost shareholders’ returns amid all market cycles. Further, these companies have a low beta, keeping them relatively stable amid high volatility. 

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