Unfortunately for investors, even when fundamentals look reasonably good for the economy, world headline events can make the sellers rush to the desk to dispose of stocks. As China continues to melt down, the word of North Korea testing a hydrogen bomb spread and the Iran/Saudi Arabia tension seemed to be stoked higher, there was one set of stocks that held in reasonably well, and they were all in very defensive sectors.
In addition to Treasury bonds and gold, when international tensions escalate, investors often rush to three defensive sectors: telecom, utilities and consumer staples. All of these have products and services that will continue to be used regardless of how dark any situation starts to look. We screened the Merrill Lynch research universe for stocks rated Buy in those three sectors, and found four that make good sense for nervous investors now.
Many of the Wall Street firms that we cover are becoming more positive on utilities again after last year’s underperformance. Dominion Resources Inc. (NYSE: D) is one of the nation’s largest producers and transporters of energy, with a portfolio of approximately 24,600 megawatts of generation and 6,455 miles of electric transmission lines. Dominion operates one of the nation’s largest natural gas storage systems, with 928 billion cubic feet of storage capacity, and it serves utility and retail energy customers in 13 states.
Dominion operates via three divisions. Dominion Virginia Power is focused on regulated electric transmission and distribution that serve residential, commercial, industrial and governmental customers in Virginia and North Carolina. Dominion Generation generates electricity through coal, nuclear, gas, oil, hydro and renewable sources. Dominion Energy centers around regulated natural gas distribution and storage.
Dominion investors are paid a solid 3.8% dividend. The Merrill Lynch price target for the stock is $77 and the Thomson/First Call consensus target is $77.83. The stock closed Wednesday at $68.47 per share.
This top consumer staple stock makes good sense for nervous investors. Kraft Heinz Co. (NYSE: KHC) is the third-largest food and beverage company in North America and the fifth-largest food and beverage company in the world, with eight $1 billion plus brands. A globally trusted producer of delicious foods, Kraft Heinz provides high-quality, great taste and nutrition for all eating occasions whether at home, in restaurants or on the go. Its iconic brands include Kraft, Heinz, Capri Sun, Jell-O, Kool-Aid, Lunchables, Maxwell House, Ore-Ida, Oscar Mayer, Philadelphia, Planters, Weight Watchers Smart Ones and Velveeta.
Kraft Heinz shareholders receive a tasty 3.16% dividend. Merrill Lynch has an $85 price target, but the consensus is at even higher at $90.29. The stock closed most recently at $73.53.