Without a doubt, 2022 has been one of the worst years for stock investors in some time. Despite brief bear market rallies, there is a very good chance that things could continue to worsen before they improve. The venerable Wall Street quote of “Don’t fight the Fed” works both ways. Interest rates will continue to be raised until the current stifling inflation is brought under control, and it could be this time next year before the interest rate increases are halted.
A new Jefferies research report notes that stocks in the defensive arena have been among the strongest performing in the S&P 500 this year. With the likelihood of continued risk-off sentiment as 2022 rolls on, the companies in this quadrant that will outperform also may have to have to be those with solid targeted capital allocation plans that thrive. The report noted this:
Despite the recent rally off of year-to-date lows, the dual specters of higher rates and a potential economic slowdown continue to weigh on equities. Given the prospect for prolonged uncertainty, a meaningful change in tack may be required, particularly if the economy should take some time to bottom. As a result, we believe investors should start to consider not merely positioning within defensive sectors, but selecting stocks with more defensive characteristics or offensive capabilities that aren’t reliant on a high growth environment.
Thirty-three companies stood out as those with notable offensive and defensive capital allocation attributes. We screened the list for the eight highest-yielding stocks. While all are rated Buy at Jefferies, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Offensive Capital Allocation Opportunities
Agree Realty
This real estate investment trust offers a solid dividend and a good inflation hedge for investors. Agree Realty Corp. (NYSE: ADC) is primarily engaged in the acquisition and development of properties net leased to industry-leading retail tenants. As of September 30, 2020, the company owned and operated a portfolio of 1,027 properties, located in 45 states and containing approximately 21.0 million square feet of gross leasable area.
The company has raised dividends for the last 11 years, and investors get the luxury of monthly dividend payments as opposed to quarterly, which could come in handy for those relying on income sources to pay the bills.
The monthly dividend that Agree Realty stock investors receive is 4.00%. The Jefferies price target for the shares is $77, while the consensus target is $76.80. Monday’s closing share price was $70.31.
Altria
This maker of tobacco products offers value investors a great entry point now as it has been hit as cigarette sales have slowed. Altria Group Inc. (NYSE: MO) is the parent company of Philip Morris USA (cigarettes), UST (smokeless), John Middleton (cigars), Ste. Michelle Wine Estates and Philip Morris Capital. PMUSA enjoys a 51% share of the U.S. cigarette market, led by its top cigarette brand Marlboro.
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