2 Defensive Stocks That Can Weather Market Volatility

2 Defensive Stocks That Can Weather Market Volatility

We are caught in a market storm these days, facing downtrends and high volatility. It is time for investors to start adopting a defensive posture with their additional portfolio.

The classic defensive plays are, of course, dividend stocks – but there are other defensive plays to be made. Investors can narrow their focus to stocks with strong product lines in essential industries, where demand will remain viable even if the economy emerges from recession. While those companies may feel the hurt, they will be able to continue to deliver profits and returns to shareholders.

While this is a more complicated course to chart than just jumping into div stocks, Wall Street analysts are up to the task. They are finding the stocks that have strong defensive positions, and offer investors plenty of upside potential at a time of increased market volatility.

We used the TipRanks data platform to look at the data on 2 defense stocks that recently received approval from Street analysts. Let’s see why they think these names make attractive investment options right now.

Rambus, Inc. (RMBS)

We’ll start in the semiconductor chip industry, where Rambus, a firm with a $2.7 billion market cap, has a solid position in the memory interface niche. Rambus offers top memory interface chip lines, high speed IP interface chips, and IP Security solutions. The company’s products have found use in the data center segment, IoT, AI and machine learning, and the autonomous vehicle sector.

Rambus’ diverse product line and customer base, anchored in the semiconductor industry, give the company its defensive position. These are products that will not lose their popularity; even if customers reduce orders, modern technology and industry cannot function without up-to-date chips.

This can be seen in Rambus’ recent 2Q22 financial results. The company reported both revenue and earnings at the top of 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 of its segments: product revenue grew 70% y/y to $53.3 million; contract and other revenue grew 67% to $19.8 million; and royalties showed a smaller 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, citing the company’s strong position and solid results: “RMBS delivered a strong hit and rise on strong demand across its product portfolio… . Given strong growth opportunities in both its Product and Silicon IP businesses and a highly recurring licensing revenue stream, we view RMBS as one of the more defensive names in our portfolio. With the stock valued at just ~4x our CY23E EV / Sales, we like the risk reward profile…”

Ho complements these sentiments with a Buy rating and a $32 price target, suggesting a one-year upside potential of 30%. (To view Ho’s track record, Click here.)

This stock’s Strong Buy consensus rating is based on the consensus opinion of Wall Street analysts, who have filed 3 positive reviews in recent weeks. The shares are currently priced at $25.29 and their average target of $34.33 suggests a 36% upside for the next 12 months. (See Rambus stock forecast at TipRanks.)

Masco Corporation (MAS)

Next 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, from wood stains to glass shower doors to cabinets, windows, and their hardware – as well as everything needed for plumbing installations home, 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 medium term – specifically, what will happen if, as interest rates rise, home sales decline – Masco’s strong presence in home improvement will provide a high degree of protection. Usually, when home sales decline, home improvement sees strength; owners who cannot sell now may want to upgrade for long-term value.

With that in mind, we can check the latest financial release (2Q22) and see that Masco reported sales growth of 8% y/y, 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 received interest from Wells Fargo’s Deepa Raghavan, who thinks the company is well-positioned to deal with the current environment despite not expecting much in the latest quarterly report.

“The CQ2 EPS miss was surprising, but mgmt noted operational inefficiencies as the reason,” explained the analyst. “However, MAS’s low ticket exposure to consumers and strong balance sheet remain a defensive addition to the portfolio in the downturn. Net-net, we always like MAS.”

Going forward, Raghavan rates these shares as Overweight (Buy), and her price target of $62 indicates she believes it has a 27% upside for the year ahead. (To view Raghavan’s track record, Click here.)

Wells Fargo’s view of Masco is bullish, but Wall Street is generally evenly divided; The 10 recent reviews include 5 on Buy and Hold. This is enough for a Moderate Buy consensus rating, although the average price target of $61.89 is almost identical to Raghavan’s objective. (See Masco stock forecast at TipRanks.)

To find great ideas for trading stocks at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unifies all of TipRanks’ equity insights.

Disclaimer: The views 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.

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