- These stocks provide a compelling case as safe-haven stocks in the face of an escalating trade war.
- Each company operates within sectors that are relatively resilient to economic fluctuations.
- Consider these stocks for their defensive qualities and long-term growth potential.
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As the global economy braces for the repercussions of a potential trade war, investors are understandably anxious about market volatility and the impact on their portfolios. In times of heightened global uncertainty and escalating trade tensions, it's prudent to seek out safe-haven stocks that offer stability and growth prospects, regardless of the prevailing market conditions.
Three such companies, Merck (NSE:PROR), NextEra Energy (NYSE:NEE), and Tyson Foods (NYSE:TSN) stand out for their strong fundamentals and resilient business models. These companies share crucial characteristics that make them attractive during trade wars: essential products or services, strong domestic market positions, and relatively low exposure to international trade disruptions.
Their combination of defensive characteristics, solid financials, and reasonable valuations makes them compelling investments during periods of increased global trade tensions.
1. Merck
- Year-To-Date Performance: -6.9%
- Market Cap: $233.8 Billion
Merck, one of the world’s leading pharmaceutical companies, is renowned for its innovative healthcare solutions, including cutting-edge oncology treatments and a broad portfolio of vaccines and prescription drugs.
Source: Investing.com
What makes Merck particularly attractive during trade tensions is its defensive nature (beta of 0.36), strong dividend yield (3.48%), and impressive return on equity (40.8%). The company's essential healthcare products tend to maintain demand regardless of economic conditions, providing a natural hedge against market volatility.
Trading at $92.56, MRK stock appears significantly undervalued compared to its Fair Value of $121.79 (+31.6% upside potential). Analysts maintain a ‘Strong Buy’ consensus with a mean price target of $112.78, ranging from $95.00 to $146.00.
Source: InvestingPro
Merck's diverse portfolio of products and its commitment to innovation through substantial R&D investments position it well for growth, even amidst a trade war. The company's key brands, such as Januvia for diabetes and Keytruda for cancer treatment, continue to drive sales and demonstrate the company's resilience, as evident by its ‘GREAT’ Financial Health score.
2. NextEra Energy
- Year-To-Date Performance: -1.1%
- Market Cap: $145.7 Billion
NextEra Energy, a leader in renewable energy and one of the largest utility companies in the United States, provides essential power through both traditional and clean energy sources.
Source: Investing.com
NextEra's defensive appeal stems from its low beta of 0.57, attractive 3.2% dividend yield, and regulated business model. The company's focus on domestic renewable energy infrastructure makes it relatively insulated from global trade disputes, while its essential service nature provides consistent demand through economic cycles.
Trading at $70.85, analysts see a significant upside with price targets ranging from $52.00 to $103.00, with a mean target of $84.27 (+19% upside).
Source: Investing.com
With a long history of stable cash flows and a commitment to sustainable growth, NextEra is uniquely positioned to benefit from both the energy transition and the inherent stability of the utility sector. As trade tensions heighten and volatility increases, NextEra’s reliable dividend yield and consistent performance offer investors a secure foothold, while its aggressive investments in renewable energy ensure long-term growth prospects.
3. Tyson Foods
- Year-To-Date Performance: +5.3%
- Market Cap: $21.5 Billion
Tyson Foods, a major player in the food processing industry, produces a diverse range of protein products, including beef, pork, and chicken, along with packaged prepared foods.
Source: Investing.com
Tyson's defensive characteristics include a moderate beta of 0.71, a solid 3.3% dividend yield, and strong market position across protein categories. The company's domestic focus and essential consumer staples nature provide stability during international trade disruptions.
Currently trading at $60.50, TSN shares show promising upside potential with a Fair Value estimate of $75.28 (+24.4% upside). Analysts maintain a ‘Buy’ rating with price targets ranging from $58.00 to $80.00.
Source: InvestingPro
As one of America's largest food producers, Tyson Foods essential role in the food supply chain makes it relatively immune to trade war impacts. The company's integrated operations, combined with strong market share in the U.S., offer a level of stability that is particularly appealing during periods of economic turbulence.
Conclusion
In the face of a looming trade war and the subsequent market volatility, investors would do well to consider safe-haven stocks that offer stability and growth potential.
Merck, with its essential healthcare products, NextEra Energy, with its leadership in renewable energy, and Tyson Foods, with its essential food offerings, represent solid choices for investors looking to weather the economic storm.
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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR® S&P 500 ETF (SPY (NYSE:SPY)), and the Invesco QQQ Trust ETF (NASDAQ:QQQ). I am also long on the Invesco Top QQQ ETF (QBIG), Invesco S&P 500 Equal Weight ETF (RSP), and VanEck Vectors Semiconductor ETF (SMH).
I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials.
The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.
Follow Jesse Cohen on X/Twitter @JesseCohenInv for more stock market analysis and insight.