As we continue on in Q1 2024, investors are increasingly placing their bets on the direction of interest rates for the rest of the year. While most economists are calling for an easing monetary policy environment, the path to lower rates remains uncertain. Accordingly, many investors may be considering a more defensive position, favoring defensive stocks in their portfolios.
I have no idea whether a recession will materialize, or if some negative catalysts will prompt interest rate declines. Maybe the so-called soft landing (or no landing) scenario that many are hoping for will play out. It’s possible, and in that case, lower rates would disproportionately benefit growth stocks, justifying the recent rally we’ve seen in the Nasdaq.
That said, I’ve chosen to take the more cautious view and point out three companies trading on the NYSE I think could be poised to perform well, regardless of where interest rates are headed. Let’s dive in!
Global beverage giant Coca-Cola (NYSE:KO) has breezed through challenges like inflation and the pandemic, thanks to its versatility and defensive business model. The company’s CEO, James Quincy, continues to emphasize the dynamic global operating environment, saying as much in the company’s recent Q3 results. The point remains worth considering, that the resilience of Coca-Cola’s robust distribution system in meeting changing global demand isn’t likely to be altered in future crises.
Consumers will continue to search for the cost-effective indulgences they have grown accustomed to, and Coca-Cola’s world-class brands will remain a staple in households, restaurants, and nearly every store where consumers find themselves. The company’s brand portfolio is strongly embedded in our society, to a degree many companies clearly envy. Shelf space penetration and brand loyalty are the kind of defensive, intangible assets that prove to be very valuable in times of disarray.
Notably, investors buying KO stock at current levels are also rewarded with a dividend that currently yields more than 3%. Notably, this dividend distribution has grown each year for 60 consecutive years, powered by solid cash flow growth. Analysts remain optimistic on the company, with 11% organic revenue growth priced in and stable margins moving forward, as the company continues its effective pricing strategies.
For those seeking long-term defensive stocks to buy and hold, KO stock is a no-brainer in my view.
Northrop Grumman (NOC)
Northrop Grumman (NYSE:NOC), recognized for stealth aircraft and lunar modules, holds an impressive share of roughly 10% of the entire aerospace market. Despite its innovative product designs, making it a top aerospace player, persistent cost overruns have been a concern for investors for some time.
However, Northrop Grumman has witnessed a stabilization of its stock price in recent months. The company’s recent Q3 results highlighted strong revenue growth, registering a 9% clip year-over-year, allowing the company to raise its full-year outlook. With an impressive backlog of $84 billion in orders and a more optimistic revenue forecast, sustained growth appears likely. Notably, each of the company’s core business segments experience year-over-year growth, with space systems leading at an 11% growth rate.
While NOC stock gained 7% last year, this stock is down materially from its peak. Of course, the kinds of catalysts driving this stock higher aren’t the ones everyday investors want to see. However, with global conflicts picking up, this is a company that provides stability across business cycles. Defense spending is unlikely to contract anytime soon, given what’s going on in the macro landscape, making this defensive stock a top pick for those concerned about interest rate volatility this year.
Philip Morris International (PM)
Cigarette smoking is out, and companies like Philip Morris International (NYSE:PM) have taken note of investors’ view on the subject. Despite a rather low price-to-earnings multiple of around 18 times for a business that pumps out cash flow, Philip Morris’ subdued multiple suggests that further stability is likely moving forward.
Indeed, looking at the company’s five-year stock chart presents a rather compelling picture. This is about as stable a stock as they come, appealing to investors who likely hold onto this stock for the company’s 5.6% dividend yield. Little capital appreciation may be expected by the market, but for those anticipating declining interest rates, PM stock is an intriguing bond proxy to consider. And with the company still holding growth potential in other smokeless product markets, it’s a bet many long-term investors may still want to hold onto.
I’ll be the first to acknowledge my own personal reservations about the company and its core product offering. This stock isn’t for everyone, and investors have the right (and maybe the moral obligation, especially for certain institutional investors) to avoid a company like Philip Morris. However, for value-conscious income investors, PM does make a compelling argument as a long-term hold, particularly for those who think interest rates will ultimately decline over time.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.