The latest inflation reading for September came in hotter than expected, increasing the possibility that the U.S. Federal Reserve will raise interest rates this year. The Consumer Price Index (CPI) rose 0.4% in September from August and was 3.7% higher than a year earlier, according to data released by the U.S. Labor Department.
Both readings were higher than analysts’ consensus forecasts, which called for inflation to rise 0.3% on a monthly basis and 3.6% year-over-year. Excluding volatile food and energy prices, the so-called core CPI, which is what the Fed really pays attention to, increased 0.3% on the month and 4.1% on a 12-month basis. Those numbers were in line with Wall Street expectations.
The major stock indices sold off immediately due to this report. The report ignited fears of higher interest rates in an effort to bring inflation back down to its 2% annualized target.
Despite recent dovish comments by Fed members, the central bank doubled down on getting inflation back to 2%. That likely means more volatility in equities. Where can investors look for shelter from the storm? Here are three defensive stocks to buy as interest rates continue to climb.
Kroger (KR)
Groceries are the type of essential product that consumers will continue to rely on even if interest rates rise further or the economy falls into a recession. This makes Kroger (NYSE:KR) a good defensive stock to own. Kroger is the largest supermarket operator by revenue in the U.S., with annual sales of nearly $140 billion. The company has a presence in 35 states and employs more than 450,000 people.
While consumers may watch their spending and look for deals, everyone still needs to eat which makes Kroger a good investment at times like now. KR stock is completely flat this year (down 0.70%). However, over the last five years, the company’s share price has risen by 60%.
Holding the stock back is some lingering uncertainty related to Kroger’s $20 billion takeover of rival grocery store chain Albertsons (NYSE:ACI). In September, Kroger and Albertsons agreed to sell about 400 stores to appease antitrust regulators reviewing the deal.
Once the Albertsons acquisition is settled, KR stock should move higher and reward long-term investors.
Waste Management (WM)
Good times or bad, garbage still accumulates and needs to be disposed of, which makes Waste Management (NYSE:WM) a great defensive stock to own. With 26,000 garbage trucks, Waste Management operates the largest trash disposal fleet in America.
The company has a virtual duopoly over the garbage industry in the U.S. along with Republic Services (NYSE:RSG). Together the two companies collect more than half of all garbage in the U.S.
Like Kroger, WM stock is basically flat this year (up by 1%). But over five years, the company’s stock has delivered a 75% return to stockholders. Additionally, Waste Management’s stock pays a quarterly dividend of 70 cents per share, giving it a yield of 1.81%.
Earnings remain healthy, with the company most recently reporting that its net income, or profit, rose 4.8% in this year’s second quarter from a year ago. The median price target on WM stock is currently $178, implying a 15% upside from current levels.
Humana (HUM)
Health insurance is another defensive industry with promising investment opportunities. Both companies and individuals prioritize their health insurance premiums regardless of what is happening with the economy, which helps to keep the earnings of insurance companies buoyant.
These factors help to make Humana (NYSE:HUM) a great pick right now. The company, which employs more than 80,000 people and has annual revenues of more than $80 billion, is one of the largest health insurers in the United States.
Like the other names on this list, HUM stock has flatlined year-to-date (up by 1%). But its long-term track record is strong with a 54% gain over the last five years.
The company is undergoing a leadership change right now with CEO Bruce Broussard stepping down in 2024 after 11 years at the helm. This may help to explain why the shares have been treading water.
However, long-term HUM stock should make for an advantageous investment. The stock also has an attractive valuation right now, trading at 16 times future earnings.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
