2 Defensive Stocks That Can Withstand Market Volatility

We are caught in a bit of a stock market storm these days, facing downtrends and high volatility. It’s time for investors to start taking defensive positions with their portfolio additions.

The classic defensive plays, of course, are dividend stocks – but there are other protective plays to be made. Investors can focus on stocks with strong product lines in essential industries, where demand will remain viable even if the economy tips into recession. These companies, although they may feel the pain, will be able to continue to generate both profits and shareholder returns.

While this is a more complex course to chart than simply jumping into the stock div, Wall Street analysts are up to the task. They found stocks that hold strong defensive positions and offer investors significant upside potential at a time of heightened market volatility.

We used the TipRanks data platform to research the details of 2 defensive stocks that recently gained analyst approval from Street. Let’s see why they think these names make attractive investment choices right now.

Rambus, Inc. (RMBS)

We’ll start with the semiconductor chip industry, where Rambus, a company with a market capitalization of $2.7 billion, has a strong position in the memory interface niche. Rambus offers lines of high-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, as well as in the autonomous vehicle sector.

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

This can be seen in Rambus’ recent 2Q22 financial results. The company reported both revenue and profit at the top of previously released forecasts. Revenue reached $121 million, up 42.6% from $85 million in the prior year quarter. The company’s revenue experienced strong growth in its three segments: product revenue increased 70% year-over-year to $53.3 million; contract and other revenue increased 67% to $19.8 million; and royalties showed a more modest gain of 14% and amounted to $48 million. On earnings, diluted EPS more than tripled year over year, from 10 cents per share to 31 cents per share.

5-star analyst Sidney Ho, from Deutsche Bank, makes the case for Rambus, pointing to the firm’s strong position and reliable results: “RMBS has achieved a solid increase in demand across its portfolio of products…. Given strong growth opportunities in its Product and Silicon IP businesses and a very recurring stream of licensing revenue, we consider RMBS to be one of the more defensive names in our coverage. With stock valued at only ~4x our CY23E EV/Sales, we like the risk-reward profile…”

Ho complements that commentary with a buy rating and a price target of $32, implying 30% year-over-year upside potential. (To see Ho’s track record, Click here.)

The consensus Strong Buy rating for this stock is based on the unanimous sentiment of Wall Street analysts, who 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 on TipRanks.)

Masco Company (BUT)

Next on our list, Masco Corp, is an $11 billion player in the construction industry, where it focuses on the home construction and renovation sectors. Masco is a conglomerate, whose component companies offer a wide range of brand name products, from wood stains and glass shower doors to cabinets, windows and their hardware – plus everything needed for home plumbing installations. , from pipes to valves to taps. the kitchen sink. Masco has 30 manufacturing facilities across North America and is headquartered in Livonia, Michigan.

While there are questions about the real estate sector over the medium term – in particular, what if, as interest rates rise, home sales decline – Masco’s strong presence in the home renovation will provide a high level of protection. Typically, when home sales decline, home improvement strengthens; owners who can’t sell now can look to upgrade with an eye on long-term value.

With that in mind, we can look at the latest financial release (2Q22) and see that Masco reported 8% year-on-year sales growth, totaling $2.35 billion. This generated an operating profit of $408 million and a margin of 17.3%. Adjusted EPS, at $1.14 per share, was flat year over year and below the forecast of $1.19. Masco also reported total liquidity of $1.44 billion, including $440 million in cash and $1 billion in available revolving credit.

The headline caught the interest of Wells Fargo’s Deepa Raghavan, who believes that although it fell short of expectations in the last quarterly report, the company is well prepared to face the current environment.

“The failure of the CQ2 EPS was a surprise, but management noted operational inefficiencies as the reason,” the analyst explained. “Nevertheless, MAS’ exposure to consumer discounts and its strong balance sheet remain a defensive addition to the portfolio during a downturn. Net-net, we continue to like MAS.

Going forward, Raghavan gives these stocks an overweight (buy) rating, while his price target of $62 indicates his belief in a 27% upside for the year ahead. (To see Raghavan’s track record, Click here.)

Wells Fargo’s view on Masco is bullish, but Wall Street is generally evenly divided; the 10 recent reviews include 5 each to buy and hold. That’s enough for a Moderate Buy consensus rating, while the average price target of $61.89 is nearly identical to Raghavan’s target. (See Masco’s stock forecast on TipRanks.)

To find great stock trading ideas at attractive valuations, visit TipRanks’ Best Stocks to Buy, a recently launched tool that brings together all of TipRanks’ stock information.

Disclaimer: The opinions expressed in this article are solely those of the analysts featured. 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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