We’re caught up in something of a market storm these days, faced with downward trends and high volatility. It’s time for investors to start taking defensive postures with their portfolio additions.
The classic defensive plays, of course, are the dividend stocks – but there are other protective plays to make. Investors can narrow their focus to stocks with strong product lines in essential industries, where demand will remain viable even if the economy tips into recession. These companies, while they may feel the hurt, will be able to continue delivering both profits and returns to shareholders.
While this is a more complex course to chart than simply jumping into div stocks, Wall Street’s analysts are up to the task. They’ve been finding the stocks that occupy strong defensive positions, and offer investors plenty of upside potential at a time of increased market volatility.
We’ve used the TipRanks data platform to look up the details on 2 defensive stocks that have received recent approval from the Street’s analysts. Let’s see why they think these names make appealing investment choices right now.
Rambus, Inc. (RMBS)
We’ll start in the semiconductor chip industry, where Rambus, a firm with a $2.7 billion market cap, holds a firm position in the memory interface niche. Rambus offers lines of top-end memory interface chips, high-speed interface IP chips, and Security IP solutions. The company’s products have found use in the data center segment, IoT, AI and machine learning, and the autonomous vehicle sector.
Rambus’s varied product line and customer base, anchored in the semiconductor industry, gives the company its defensive stance. These are products that will not lose their demand; even if customers scale back on orders, modern tech and industry simply cannot function without up-to-date chips.
This can be seen in Rambus’ recent 2Q22 financial results. The company reported revenues and earnings both at the top of the previously published guidance. The top line reached $121 million, growing 42.6% from the $85 million reported in the year-ago quarter. The company’s top line saw strong growth in all three of its segments: product revenue grew 70% y/y to reach $53.3 million; contract and other revenue grew 67% to hit $19.8 million; and royalties showed a more modest gain of 14% and came in at $48 million. On earnings, diluted EPS more than tripled y/y, from 10 cents per share to 31 cents per share.
5-star analyst Sidney Ho, weighing in from Deutsche Bank, makes the case for Rambus, pointing out the company’s strong position and reliable results: “RMBS delivered a solid beat-and-raise on robust demand across its product portfolio…. Considering strong growth opportunities in both its Product and Silicon IP businesses and a highly recurring stream of licensing income, we view RMBS as one of the most defensive names in our coverage. With the stock valued at just ~4x our CY23E EV/Sales, we like the risk-reward profile…”
Ho complements these comments with a Buy rating and a $32 price target, implying a one-year upside potential of 30%. (To watch Ho’s track record, click here.)
This stock’s Strong Buy consensus rating is based on unanimous sentiment from Wall Street’s analysts, who have filed 3 positive reviews in recent weeks. The shares are currently priced at $25.29 and their $34.33 average target suggests a 36% upside for the next 12 months. (See Rambus’s stock forecast at TipRanks.)
Masco Corporation (MAS)
Next up on our list, Masco Corp, is an $11 billion player in the construction industry, where it focuses on the home building and home improvement sectors. Masco is a conglomerate, whose component companies offer a wide range of branded products, ranging from wood stains to glass shower doors to cabinets, windows, and their hardware – as well as everything needed for home plumbing installations, from pipes to valves to faucets to the kitchen sink. Masco has 30 manufacturing facilities in North America, and is headquartered in Livonia, Michigan.
While there are questions about the real estate sector in the mid-term – specifically, what will happen if, as interest rates rise, home sales decline – Masco’s strong presence in home improvement will provide a high level of protection. Typically, when home sales decline, home improvement sees strength; owners who can’t sell now may look to upgrade with an eye towards long-term value.
Keeping that in mind, we can check the latest financial release (2Q22) and see that Masco reported 8% y/y sales growth, to a total of $2.35 billion. This generated an operating profit of $408 million, and a margin of 17.3 percent. Adjusted EPS, at $1.14 per share, was flat y/y, and came in below the $1.19 forecast. Masco also reported total liquidity of $1.44 billion, including $440 million in cash assets and $1 billion in available revolving credit.
This stock has picked up interest from Wells Fargo’s Deepa Raghavan, who thinks that despite not meeting expectations in the latest quarterly report, the company is set up well to deal with the current environment.
“CQ2 EPS miss was a surprise, but mgmt noted operational inefficiencies as the reason,” the analyst explained. “Nevertheless, MAS’s low-ticket consumer exposure and strong balance sheet remains a defensive addition to the portfolio in a downturn. Just like that, we continue to like MAS.”
Going forward, Raghavan gives these shares an Overweight (Buy) rating, while her price target of $62 indicates her belief in an upside of 27% for the year ahead. (To watch Raghavan’s track record, click here.)
The Wells Fargo view on Masco is bullish, but Wall Street generally is evenly divided; the 10 recent reviews include 5 each for Buy and Hold. This is enough for a Moderate Buy consensus rating, while the $61.89 average price target is almost identical to Raghavan’s objective. (See Masco’s stock forecast at TipRanks.)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.