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Bond Yield Curve Inverts: 3 Defensive Stocks to Buy

The U.S. bond market has indicated what some people believe to be the biggest warning of an upcoming recession. The spread between the 2-year treasury yield and the 10-year yield inverted, with the 2-year yield climbing higher than the benchmark 10-year yield for the first time since 2007.

On top of that, the U.S. 30-year bond yield fell to a record low early Wednesday, dropping down to 2.105% for the first time ever. Bond yield drops were not exclusive to the U.S., yields across Europe fell with the German 10-year bund reaching a new low of -0.65%. Strategists believe that a yield curve must stay inverted for it to truly signal a recession. Therefore, current bond yields are cause for concern only if they remain inverted. An inverted bond yield curve has been a reliable indicator of economic contractions but it does not always precede a recession.

With some bond yields at all-time lows amid broader economic uncertainty, investors have turned toward defensive stocks. Let’s take a closer look at a few stocks that can perform well during global economic uncertainty.  

Procter & GamblePG is part of the consumer staples industry that is often seen as a relatively defensive move during market unpredictability. PG is a Zacks Rank #2 (Buy) right now and its shares have climbed 27.7% in 2019, with the broader soaps and cosmetics market trailing close behind, up 20%.

PG had a solid Q4 2019, beating earnings and revenue estimates by 3.77% and 1.31%, respectively. Furthermore, both revenue and earnings grew Y/Y in Q4. Zacks Consensus estimates project PG’s growth to continue in Q1 2019 with earnings projected to climb 10.71% and revenue to pop 4.82% to $17.49 billion. Furthermore, estimate revisions have ticked favorably in the right direction for PG as the chart below shows. 

Kimberly-ClarkKMB is another consumer staples stock that has had a strong year, with KMB stock up 22%. The company operates some of the most recognizable personal care brands such as: Huggies, Pull-Ups, Kleenex, and Scott. Kimberly-Clark continued its strong 2019 with a second-quarter earnings beat that saw its EPS jump 5% to $1.67 per share.

 

KMB also raised its full-year earnings outlook to $6.65-$6.80, up from management’s previous estimate of $6.50-$6.70. Consensus estimates calls for KMB to sustain this bottom-line growth in Q3 with a jump of 4.68% to $1.79 on the back of 2.02% higher sales that would see it reach to $4.67 billion. Positive top and bottom-line growth is projected through 2020 and Kimberly-Clark sports a Zacks Rank #2 (Buy).

Chesapeake UtilitiesCPK is a utility company engaged in natural gas distribution and transmission. Utilities are generally more stable stocks as the demand for electricity and gas often remains constant despite broader economic conditions. Utilities companies are also non-cyclical and don’t often move with larger market trends. CPK has a beta of 0.24 and pays out a quarterly dividend of $1.62, with a yield of 1.75% at the moment.

Chesapeake’s quarterly dividend paired with its low volatility can provide investors with a secure defensive investment. Consensus estimates also forecast CPK’s bottom-line to spike 5.88%, while sales surge 21.33% to $170.2 million in Q3. Looking ahead to the company’s full fiscal year outlook, estimates call for earnings to pop 12.39% to $3.72 and revenue to grow 6.95% to $767.37 million. Like its defensive peers, CPK is Zacks Rank #2 (Buy) at the moment.

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Chesapeake Utilities Corporation (CPK): Free Stock Analysis Report
 
Kimberly-Clark Corporation (KMB): Free Stock Analysis Report
 
Procter & Gamble Company (The) (PG): Free Stock Analysis Report
 
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