Great Rotation Trade and Growth Interrupted, Defensive Stocks Winning as Dow Drops Over 300 Points

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U.S. investors have finally seen two consecutive days of stocks selling off. And it has been big selling. Call it rising Treasury yields, call it profit taking, call it some paranoia about what might get said in the State of the Union speech. Call it severe buying fatigue, or even call it the fear that 3% GDP growth may be harder to reach than some of us hope. And the selling pressure in health care stocks weighed on as Jeff Bezos, Warren Buffett and Jamie Dimon are targeting a new health care company aimed at improving health and lowering costs without the constraints of being a profitable company. And that great recovery seen in energy stocks was against the ropes after oil sold off $2 per barrel this week.

Investors have seen stocks rise endlessly, and this bull market is now almost nine years old. The Dow Jones Industrial Average and S&P 500 were on track for almost a 10% gain for the first month of 2018 before Monday’s selling got in the way. And that’s after the Dow rose about 25% and the S&P rose more than 19% in 2017. What has been a challenge for investors is that they have had to figure out how to position their portfolios for this year and beyond.

While the trend that has prevailed over and over where investors have won from buying every pullback, some investors might be wondering if they should lighten up on some of the growth names and go back into some of the flailing defensive stocks. These defensive stocks generally offer strong dividends that have risen for years, and they tend to be where investors want to hide if they want stock market exposure without at least some of the risks as growth stocks if a big sell-off is ever going to arrive.

The Dow went under 26,100 on Tuesday, down over 500 points from last week’s all-time high. The reality is that we just haven’t seen a big sell-off in so long that investors might be spooked when they see selling this large. The 10-year Treasury yield is now 2.73%, the highest yield since 2014.

24/7 Wall St. reviews many stocks, and we found that the defensive stocks are by and large holding up far better than the broader market. The S&P 500 was down over 0.9% (26 points) and the Nasdaq was down 0.8% (60 points).

Here are how the traditional defensive stocks are holding up on Tuesday’s big sell-off.

American Electric Power Co. Inc. (NYSE: AEP) may still have a power mix that needs some change, but the utility is up 0.9% at $68.50 on a day when the broad market is hammered. AEP has a 52-week trading range of $62.69 to $78.07 and a consensus analyst target price of $74.07. It also has a 3.6% yield.

Aqua America Inc. (NYSE: WTR) was last seen up 0.2% at $36.43, as most people aren’t too worried that there is a workaround for your water utility. Its 52-week range is $29.53 to $39.55, and its consensus target price is $39.07. Aqua America has a 2.2% yield.

AT&T Inc. (NYSE: T) is back in favor on a day when growth stocks are taking it on the chin. With shares up 0.8% at $37.55, AT&T has a 52-week range is $32.55 to $42.70. Its consensus price target is $39.64. AT&T has raised dividends for more than three decades, and its yield is about 5.3%.

Duke Energy Corp. (NYSE: DUK) was last seen up 0.4% at $77.61. The nation’s top electric utility has a 52-week range of $76.28 to $91.80 and a consensus target price of $85.54. Its yield is 4.5%.

Kraft Heinz Co. (NASDAQ: KHC) was last seen up 0.6% at $78.90, in a 52-week range of $75.21 to $97.77. Its yield is 3.15% and its consensus analyst target is $90.29. Kraft Heinz sells endless amounts of food that people are going to keep buying whether the market is up or down 300 points, but its stock has done nothing good for almost a year.

PepsiCo Inc. (NYSE: PEP) must be immune to fears over sales of water, soda, chips and other snack foods. Pepsi shares were last seen up 0.4% at $120.15, in a 52-week range of $102.98 to $122.51 and with a consensus target price of $125.40. Pepsi’s dividend yield 2.64%.

Procter & Gamble Co. (NYSE: PG) was last seen up 0.2% at $87.05, in a 52-week range of $85.24 to $94.67 and with a consensus analyst target of $93.92. P&G now has Nelson Peltz inside, and while it’s hard to see what he is going to be able to force here, this company has over 50 years of dividend hikes (with a 3.1% yield).

Other typical defensive stocks are down, but barely:

  • American Water Works Co. Inc. (NYSE: AWK) was last seen down 0.6% at $83.21, not bad for America’s largest water utility on a horrible day. Its yield is now just under 2%, which has kept a lid on how high its stock can run up. That said, its 52-week range is $71.63 to $92.37.
  • Altria Group Inc. (NYSE: MO) down six cents at $69.78, in a 52-week high of $77.79 and with a 3.7% yield.
  • Coca-Cola Co. (NYSE: KO) was down just 10 cents to $47.60, versus a 52-week high of $48.62 and with a yield of 3.05%.
  • Verizon Communications Inc. (NYSE: VZ) was down 0.5% at $53.85, with a 52-week high of $54.77 and a 4.3% yield.