A sharp rise in inflation over the past couple of months has unsettled markets as investors worry that the Federal Reserve could delay its next rate cut till the second half of the year. This could further weaken the economy’s health.
Fears of a trade war are adding to the worries of a slowing economy. Given the ongoing uncertainty, it would be safe to invest in utility stocks, such as NiSource Inc. NI, Atmos Energy Corporation ATO, American Water Works Company, Inc. AWK and New Jersey Resources Corporation NJR. Each of the stocks belongs to defensive spaces like healthcare and utility and carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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.
The Labor Department reported last week that the consumer price index (CPI) increased by 0.5% in January, following a 0.4% rise in December. This marks the sharpest increase since August 2023 and significantly surpasses analysts' forecast of a 0.3% rise.
On a year-over-year basis, CPI climbed 3% in January from 2.9% in December, recording its biggest annual gain since April 2024. Core CPI, which excludes volatile food and energy costs, rose 0.4% month over month after a 0.2% increase in December.
Despite declining sharply over the past year, inflation has remained high, posing a major challenge for consumers and the Federal Reserve, which has struggled to bring it down to its 2% target even after adopting a strict monetary tightening campaign that saw it hiking interest rates by 525 basis points.
A day after the CPI report, the producer price index (PPI) report reflected a similar trend. PPI increased 0.4% in January, mirroring December’s gain and surpassing the consensus estimate of a rise of 0.3%. On an annual basis, PPI rose 3.5% in January, maintaining the same pace as the prior month.
With both CPI and PPI indicating persistent inflation, a Federal Reserve rate cut is unlikely before the second half of the year. The central bank had previously cut interest rates by 100 basis points over three consecutive meetings, starting in September 2024, as inflation showed signs of easing.
However, inflationary pressures re-emerged in late 2024, prompting the Fed to warn that rate cuts in 2024 would be limited, with at most two reductions expected. In January, the Fed paused its rate-cutting cycle, keeping interest rates steady at 4.25-4.5%.
Given the latest inflation surge, the central bank is likely to remain cautious in the months ahead. A rate cut that was widely expected in May now seems improbable.
Adding to market concerns, former President Trump has threatened to impose tariffs on multiple countries, including Canada and Mexico, which have heightened fears of a trade war, further pressuring financial markets.
NiSource Inc., together with its subsidiaries, provides natural gas, electricity and other products and services in the United States. NI’s operating subsidiaries deliver energy to nearly 4 million customers in six states — Ohio, Pennsylvania, Virginia, Kentucky, Maryland and Indiana.
NiSource has an expected earnings growth rate of 9.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.7% over the last 60 days. NI presently carries a Zacks Rank #2. NiSource has a beta of 0.54 and a current dividend yield of 2.82%.
Atmos Energy Corporation, along with its subsidiaries, is engaged in the regulated natural gas distribution and storage business. ATO serves nearly 3.4 million customers in more than 1,400 communities in eight states, from the Blue Ridge Mountains in the East to the Rocky Mountains in the West. Atmos Energyoperates more than 72,000 miles of transmission and distribution lines as well as 5,700 miles of interstate pipelines.
Atmos Energy has an expected earnings growth rate of 5.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 60 days. ATO presently has a Zacks Rank #2. Atmos Energy has a beta of 0.72 and a current dividend yield of 2.38%.
American Water Works Company, Inc. provides essential water services to over 14 million customers in 24 states and has an employee strength of 6,500. AWK also acquires small water service providers to expand its customer base.
American Water Works Company has an expected earnings growth rate of 8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 60 days. AWK presently carries a Zacks Rank #2. American Water Works has a beta of 0.72 and a current dividend yield of 2.44%.
New Jersey Resources Corporation is an energy services holding company, which, through its subsidiaries, provides safe and reliable natural gas and clean energy services, including transportation, distribution, asset management and home services. NJR operates through four segments: Natural Gas Distribution, Clean Energy Ventures, Energy Services, and Storage and Transportation.
New Jersey Resources has an expected earnings growth rate of 7.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.6% over the last 60 days. NJR presently sports a Zacks Rank #1. New Jersey Resourceshas a beta of 0.63 and a current dividend yield of 3.94%.
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