We recently published a list of The 10 best defensive stocks to buy now. In this article, we take a look at how Constellation Brands, Inc. (NYSE:STZ) compares to other defensive stocks.
Defensive stocks tend to remain stable and are less affected by economic downturns. These companies operate in sectors that provide essential goods and services that people need regardless of the economic climate. Defensive stocks primarily include stocks of companies in the utilities, consumer goods, and healthcare sectors because they provide basic necessities of life. Companies in these sectors tend to have lower volatility and often pay stable dividends. They usually offer a safer investment option during times of market uncertainty.
US stocks rise sharply, but experts remain cautious
US stocks are doing well, thanks to strong economic data that has reassured investors. The S&P 500 and Nasdaq 100 have posted significant gains as they gained 4.3% and over 6% respectively in the last 5 days ending August 15. Global markets have also recovered from recent losses, and the US market as a whole has recovered from the losses it suffered in the first week of August. Investor sentiment remains strong, and US stocks are seeing continuous inflows. Moreover, Fed officials are hinting at possible rate cuts, which supports optimism that the US economy is on track for a soft landing.
However, some experts remain concerned about the future of the U.S. economy and markets and take a more conservative view. According to a July report by JP Morgan, recent market trends have benefited large, high-quality companies, particularly in technology and AI, resulting in high market concentration. However, high valuations and investor positioning may make it difficult to maintain this momentum in the second half of 2024. The report says that while U.S. market volatility is currently low, it could rise if conditions change.
According to Bruce Kasman, global growth is stable at 2.4%, with Western Europe and emerging markets recovering better and the manufacturing sector picking up again. Despite this, global core inflation is expected to be around 3% in 2024, which could limit the potential for monetary easing. Kasman warned that controlling inflation and normalizing interest rates could weaken demand and, in interaction with political factors, cause further inflation and tightening of monetary policy by central banks.
Leon Cooperman’s view on the current conditions
On August 15, Omega Advisors Chairman and CEO Leon Cooperman shared his perspective on the current economic situation CNBC Money Transfer CompanyCooperman expressed a cautious outlook on the economy, driven by two main factors. First, he is alarmed by the rapid increase in the US national debt, which has doubled from about $17 trillion in 2017 to about $34-35 trillion today. He said that this level of debt growth, which outpaces economic growth, is unsustainable and could lead to a fiscal crisis. However, the exact timing of such a crisis is uncertain. He added that none of the political parties are addressing this looming problem.
Second, Cooperman compared today’s market conditions with past periods of financial excess, such as the Nifty 50 era in the 1970s, when companies with extremely high valuations eventually went bust. He noted that the 10-year bond yield was 6.5% then, significantly higher than the current rate of around 3.9%. He believes that market valuations are not too high if the current bond yield is reasonable. However, he suspects that interest rates are too low and expects a rise in long-term interest rates, particularly the 10-year Treasury yield.
While he expects the Federal Reserve to cut short-term interest rates, which could lower borrowing costs, he believes long-term interest rates will rise, causing bond prices to fall and potentially putting downward pressure on equity valuations. If long-term interest rates rise significantly, it could make the stock market less attractive and potentially lead to a market decline.
Even though the current year has shown healthy markets with some corrections, Leon Cooperman’s expectations for the markets cannot be ignored. Cooperman is considered one of the most successful investors of the last decades. If these expectations come true, investors could turn to more defensive market sectors.
Our methodology
For this article, we used stock screeners to identify over 50 large- and mega-cap stocks from defensive sectors such as consumer staples, utilities, and healthcare. We narrowed our list down to 10 stocks with positive analyst sentiment and the highest average analyst price target as of August 16.
A winemaker examines a glass of red wine from a barrel in a cellar.
Constellation Brands, Inc. (NYSE:STZ)
Share price as of August 16: USD 245.45
Average analyst price target as of August 16: 22.22%
Constellation Brands, Inc. (NYSE:STZ) is a well-known company that produces and distributes beer, wine, and spirits. The company has an extensive portfolio that includes renowned imported beer brands such as Corona Extra, Modelo Especial, and the Modelo Cheladas series. In addition, it offers a range of premium wines and craft spirits from well-known brands such as The Prisoner Wine Company, Robert Mondavi Winery, Casa Noble Tequila, and High West Whiskey. It is one of the best defensive stocks to buy now.
Constellation Brands (NYSE:STZ) has a Buy rating according to the consensus opinion of 26 analysts. As of August 16, the average price target of $300.00 represents an upside potential of 22.22% from current levels.
Constellation Brands (NYSE:STZ) has a strong chance of continued success in the beverage industry, thanks to its extensive portfolio of well-known brands such as Corona, Modelo, Robert Mondavi and Kim Crawford. In the first quarter of fiscal 2025, the company reported a 5.8% increase in total revenue to $2.661 billion. This growth was driven by the beer segment, which saw a strong increase of 8.3%, thanks to the performance of brands such as Modelo Especial, Pacifico and Modelo Chelada, as they significantly increased sales.
The impressive results in the beer segment are underscored by the fact that Constellation Brands (NYSE:STZ) beer sales grew 7.8% faster than the broader category.
On July 5, Wells Fargo maintained an Overweight rating on the stock with a $300 price target following the company’s Q1 fiscal 2025 earnings report. While some investors have been cautious based on past stock performance, Wells Fargo believes the company’s fundamentals are solid. The company expects the company to post double-digit earnings growth in fiscal 2025 for the first time since 2018. The analyst also believes the company’s beer shortage is likely to exceed pessimistic predictions, which could lead to improved gross margins on beer.
Additionally, Constellation Brands’ (NYSE:STZ) first-quarter results showed a strong customer base, with Hispanic consumers making up over 50% of the customer mix. This demographic is growing rapidly in the U.S., representing a favorable trend for sustained business growth. Although the company expects modest growth in wine and spirits, with revenue expected to increase between 6% and 7% for fiscal 2025, strong performance in beer sales and continued 8% to 10% operating income growth across its segments point to a promising future.
Total STZ 9th place on our list of the best defensive stocks to buy. While we recognize STZ’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than STZ but trades at less than 5x earnings, read our report on the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.
