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5 Safe Stocks to Buy as Consumer Sentiment Hits 6-Month Low

Rising inflation is igniting fresh fears of an economic slowdown, as the upbeat sentiment among millions of Americans continues to fade fast. Consumers who were confident about the economy’s health till a few months back are now doubtful about the future.

The University of Michigan’s preliminary reading on the overall consumer sentiment index came up with a reading of 67.4 for May, its lowest level in six months. Also, this was sharply lower than April’s reading of 77.2 and the consensus estimate of 76.

This reflects a 12.7% month-over-month and 14.2% year-over-year decline in consumer sentiment.

The one-year outlook for inflation climbed to 3.5% in May, increasing 0.3% month over month. Also, the five-year outlook for inflation rose 0.1% to 3.1% in May.

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The current condition index dropped over 10 points to 68.8 in May. The expectations index slipped to 66.5%, declining 9.5%.

Economic growth slowed in the first quarter, increasing a modest 1.6%, sharply lower than the consensus estimate of 2.2%, and after increasing 3.5% in the final quarter of 2023.

Inflation, which had been declining sharply till December 2023, thanks to the Federal Reserve’s strict monetary tightening campaign, has once again started its ascent.

Consumer Price Index (CPI) rose 3.5% in March, which has raised concerns among investors as they fear that the Federal Reserve could further delay its planned rate cuts. The Fed also said that it doesn’t see any signs of inflation declining sharply and its 2% target is still a far cry.

Rising inflation presently remains the biggest concern leading to delay rate cuts, which could keep markets volatile for a longer period.

Our Choices

Given this situation, it would thus be wise to invest in defensive stocks like utilities and consumer staples like California Water Service Group CWT, National Grid plc NGG, Pinnacle West Capital Corporation PNW, Colgate-Palmolive Company CL and PepsiCo, Inc. PEP.

Also, these belong to the category of low-beta stocks (beta greater than 0 but less than 1). Hence, the recommended approach is to invest in low-beta stocks with a high dividend yield and a favorable Zacks Rank. Each of the stocks has a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

California Water Service Group is one of the largest investor-owned water utilities in the United States. CWT has six subsidiaries — California Water Service, Washington Water Service Company, New Mexico Water Service Company, Hawaii Water Service Company, CWS Utility Services and HWS Utility Services.

California Water Service Group has an expected earnings growth rate of 246.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 40% over the last 60 days. CWT currently carries a Zacks Rank #1. California Water Service Group has a beta of 0.47 and a current dividend yield of 2.11%.

National Grid plc is an international energy delivery business, whose principal activities are in the regulated electricity and gas industries. In the U.S. National Gridis one of the top 10 electricity companies, with the largest electricity transmission and distribution network in the New England/New York region. NGG owns and operates the high-voltage electricity transmission network in England and Wales, and Britain's natural gas transportation system.

National Grid has an expected earnings growth rate of 29.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 9.2% over the last 60 days. NGG presently carries Zacks Rank #2. National Gridhas a beta of 0.645 and a current dividend yield of 3.31%.

Pinnacle West Capital Corporation provides electricity services (wholesale or retail) in the state of Arizona through its subsidiaries. PNW is involved in the generation, transmission and distribution of electricity from coal, nuclear, gas, oil and solar.

Pinnacle West Capital Corporation’s has an expected earnings growth rate of 7.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last 60 days. PNW currently carries a Zacks Rank #2. Pinnacle West Capital Corporation has a beta of 0.48 and a current dividend yield of 4.56%.

Colgate-Palmolive Company’s business strategy closely defines efforts to increase its leadership in key product categories through innovation in core businesses, tracking adjacent categories’ growth and expansion into new markets and channels. Due to the shift of consumer preference to organic and natural ingredients, CL is expanding its Naturals range, including Naturals toothpaste.

Colgate-Palmolive Company has an expected earnings growth rate of 9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the past 60 days. CL presently has a Zacks Rank #2. Colgate-Palmolive has a beta of 0.40 and a current dividend yield of 2.10%.

PepsiCo, Inc. is one of the leading global food and beverage companies. PEP’s complementary brands/businesses include Frito-Lay snacks, Pepsi-Cola beverages, Gatorade sports drinks, Tropicana juices and Quaker foods. PepsiCo serves customers in more than 200 countries and territories.

PepsiCo has an expected earnings growth rate of 7.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 60 days. PEP currently has a Zacks Rank #2. PepsiCo has a beta of 0.52 and a current dividend yield of 2.81%.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

PepsiCo, Inc. (PEP) : Free Stock Analysis Report

Colgate-Palmolive Company (CL) : Free Stock Analysis Report

Pinnacle West Capital Corporation (PNW) : Free Stock Analysis Report

National Grid Transco, PLC (NGG) : Free Stock Analysis Report

California Water Service Group (CWT) : Free Stock Analysis Report

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