Recent economic data is reigniting talk about a soft landing for the economy. That means that the Federal Reserve’s monetary policy regarding interest rates is neither too restrictive nor too loose. Economic growth may slow down, but not enough to cause an outright recession.
That’s the camp that some investors are betting on. But it’s important to remember that a Goldilocks scenario like this doesn’t necessarily mean it’s smooth sailing for stocks. You’ll still want to look for well-capitalized companies with strong fundamentals. These are the stocks that are going to have the best chance to move sharply higher on economic good news.
One category of stocks that looks appealing is defensive stocks. These companies have products and services that consumers can’t do without. That demand provides a stable base for revenue and earnings.
The other benefit of investing in defensive stocks is that soft landings are tough to execute, and the Federal Reserve has a mixed record for pulling off that feat. Here are three stocks to consider if a soft landing materializes.
Tyson Foods Is Set to Make New Record Highs
In a time of intense market volatility, Tyson Foods Inc. (NYSE: TSN) has shown its defensive properties. The company is best known for its chicken products, but it was the other white meat, pork, that is helping the company’s bottom line.
The catalyst for the stock’s recent performance was a strong earnings report fueled by a spike in pork prices. However, the company also strengthened its operating income in the chicken category even as it posted lower sales.
Analysts had high hopes for the company’s earnings, and Tyson delivered. Both the topline and bottomline numbers beat expectations, with earnings per share (EPS) of 60 cents per share coming in 480% higher year-over-year.
TSN stock is up more than 7% in the month ending August 14 and is trading around a level of support that suggests new 52-week highs are on the way. Even at its present level, the stock is up 15% in 2024, nearly double the average number of consumer staples stocks in 2024.
Kinder Morgan Is a Bet on Probability
Kinder Morgan Inc. (NYSE: KMI) is a midstream energy company that has been up 20% in the last 12 months and may be on its way to hitting highs the stock hasn’t seen in nearly 10 years. Kinder Morgan operates one of the world’s largest pipeline networks, particularly for natural gas.
The company has approximately 66,000 miles of natural gas pipelines that move approximately 40% of all U.S. natural gas production. The company is benefiting from strong demand for natural gas fueled, in part, by the massive need for power required by data centers.
This is happening at a time when oil prices remain suppressed. However, lower interest rates and geopolitical uncertainty are both bullish for oil prices. Those catalysts will be in place regardless of the outcome of the November presidential election.
Analysts continue to see an upside of more than 5% on KMI stock. Shareholders also receive a juicy 5.48% dividend yield.
Exelixis Is a Moonshot with a Lot of Momentum
Biotechnology companies are not commonly considered defensive stocks, but there’s a strong case to be made for Exelixis Inc. (NASDAQ: EXEL). For starters, the company is solely focused on oncology drugs. As we move into a world of AI-enhanced drug discovery, oncology is an area that’s likely to be a big beneficiary.
Also, unlike many biotechs that are clinical-stage companies, Exelixis has multiple oncology drugs that make up its Cabozantinib franchise.
That franchise was responsible for the company's posting record revenue and earnings in its second-quarter earnings report. Revenue of $637.2 million was 35% higher than the $469.85 million reported in the prior year. Earnings per share of 78 cents were 212% higher YoY.
The strong earnings report has pushed EXEL stock to a 52-week high, and analysts are bidding the stock higher. Notably, Truist Financial Corp. (NYSE: TFC) reiterated its Buy rating on the stock and raised its price target from $32 to $33, a 24% increase from the consensus price target.