5 Picks for May From Best S&P 500 Sectors in Ruthless April

Wall Street completed its worst April in more than five decades. Historically, April is considered a strong month on Wall Street. This month is generally known as the best month for the market’s benchmark S&P 500 Index. However, this year, a plethora of headwinds, specific to both the U.S. and global economies, decimated investors’ confidence in risky assets like equities.

Market participants nightmare many continue in the near term as most of the economists and financial experts are expecting a more-than hawkish Fed in the May and June FOMC meetings. At this juncture, it should be a good strategy to stay with defensive stocks with a favorable Zacks Rank to counter severe volatility. Here are five of them — Archer-Daniels-Midland Co. ADM, The Chefs’ Warehouse Inc. CHEF, Pilgrim’s Pride Corp. PPC, McCormick & Company Inc. MKC and Sysco Corp. SYY.

Headwinds That Hit April

Despite raising the benchmark interest rate by 25 basis points in March, for the first time in three years, several measures of inflation have shown no signs of a downtrend and remained elevated at a 40-year high. Soaring inflation has compelled Fed Chairman Jerome Powell to say that the central bank will not hesitate to take harsher measures in 2022.

Market participants are largely expecting the Fed to hike the interest rate by 50 basis points in both May and June FOMCs and start shrinking the size of its $9 trillion balance sheet from May.

A more than hawkish Fed, the continuation of high inflationary pressure due to lingering global supply-chain disruptions, the prolonged war between Russia and Ukraine and the resurgence of COVID-19 infections in China with ensuing lockdowns have raised serious questions about a near-term recession in the United States as well as the global economy.

To make the situation worse, both IMF and World Bank reduced their projections for the 2022 global economic growth rate in April. More importantly, the U.S. GDP for first-quarter 2022 contracted 1.4% after climbing 6.9% in fourth-quarter 2021. The consensus estimate was for an increase of 1%.

Finally, weak earnings results for first-quarter 2022 by some U.S. corporate bigwigs, especially those who benefited during pandemic-led lockdowns, and disappointing guidance from several major corporate devasted market participants’ confidence.

As a result, in April, the three major indexes — the Dow, the S&P 500 and the Nasdaq Composite — tumbled 4.9%, 8.8% and 13.3%, respectively. The Dow and the S&P recorded the worst April since 1970 and the Nasdaq Composite posted the worst April since 2000.

The Nasdaq Composite is in bear territory declining 23.9% from its recent high. The S&P 500 and the Dow are in the correction zone after falling 14.3% and 10.8% from their recent peaks.

Why Defensive Stocks

Markets are likely to remain volatile as investors are waiting for back-to-back crucial FOMC meetings in May and June. Defensive sectors like consumer staples, utilities and health care should provide stability to one’s portfolio. In April, out of 11 broad sectors of the S&P 500 Index, only the Consumer Staple sector Select Sector SPDR XLP ended in green with a gain of 2.1%.

The consumer staples sector is mature and fundamentally strong as demand for such services is generally immune to the changes in the economic cycle. The consumer staples sector includes companies that provide necessities and products for daily use. This makes the sector defensive in nature. Therefore, this has always been a go-to place for investors, who want to play it safe during extreme market fluctuations irrespective of internal or external disturbances.

Our Top Picks

We have narrowed our search to five consumer staples stocks that have solid growth potential for the rest of 2022. These stocks have seen positive earnings estimate revisions in the last 30 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks in the past three months.

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Image Source: Zacks Investment Research

Archer-Daniels-Midland has been gaining from solid demand, improved productivity and product innovations. Persistent growth in the Nutrition segment of ADM, driven by significant gains in the Human and Animal Nutrition units, remained the key growth drivers. Archer-Daniels-Midland expects the nutrition segment operating profit growth of 20% in 2022. The company has been significantly progressing on its three strategic pillars — optimize, drive, and growth.

The Zacks Rank #1 Archer-Daniels-Midland has an expected earnings growth rate of 7.7% for the current year. The Zacks Consensus Estimate for current-year earnings improved 3.7% over the last 7 days.

The Chefs’ Warehouse is a distributor of specialty food products in the United States. CHEF is focused on serving the specific needs of chefs who own or operate restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools and specialty food stores.

The Chefs’ Warehouse’s product portfolio includes artisan charcuterie, specialty cheeses, unique oils and vinegars, hormone-free protein, truffles, caviar, and chocolate. It also offers cooking oils, butter, eggs, milk, and flour.

The Zacks Rank #2 The Chefs’ Warehouse has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 5.4% over the last 7 days.

Pilgrim’s Pride is engaged in the production, processing, marketing and distribution of fresh, frozen, and value-added chicken products in the United States, the United Kingdom, Europe, and Mexico. Overall domestic demand is likely to remain solid during 2022 in the U.S. market.

PPC’s foodservice business also witnessed improvements on the back of a sustained recovery in commercial and noncommercial segments. Apart from this, Pilgrim’s Pride continues to prioritize capital spending plans during 2022 to optimize its product mix and solidify partnerships with key customers.

The Zacks Rank #1 Pilgrim’s Pride has an expected earnings growth rate of 21.9% for the current year. The Zacks Consensus Estimate for next-year earnings improved 1.8% over the last 30 days.

McCormick & Co. has capitalized on healthy and flavorful cooking, increased digital engagement and purpose-minded practices. The robust recovery in the away-from-home demand bodes well. MKC strategically increased its presence through acquisitions to grow its portfolio. McCormick & Co. is optimistic about its pipeline of innovation for 2022.

The Zacks Rank #2 McCormick & Co. has an expected earnings growth rate of 3.9% for the current year. The Zacks Consensus Estimate for next-year earnings improved 0.1% over the last 30 days.

Sysco is gaining on solid food-away-from-home trends and is progressing well with its Recipe for Growth plan. SYY continued to witness market share gains and solid food-away-from-home sales.

Sysco has been carrying out various acquisitions over the years to grow its distribution network and customer base and boost long-term growth. In February 2022, SYY acquired The Coastal Companies, a well-known fresh produce distributor and value-added processer.

The Zacks Rank #2 Sysco has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for next-year earnings improved 4.3% over the last 30 days.

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Archer Daniels Midland Company (ADM) : Free Stock Analysis Report

McCormick & Company, Incorporated (MKC) : Free Stock Analysis Report

Sysco Corporation (SYY) : Free Stock Analysis Report

Pilgrim’s Pride Corporation (PPC) : Free Stock Analysis Report

Consumer Staples Select Sector SPDR ETF (XLP): ETF Research Reports

The Chefs’ Warehouse, Inc. (CHEF) : Free Stock Analysis Report

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