Dollar General, RH and Altria headline Jefferies' list of top defensive stocks
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Jefferies broke down the best defensive stocks for investors to consider in a tough macro economic backdrop with an eye on capital allocation.
"Defensive sectors are among the strongest relative performing SPX sectors YTD, but a continuation in risk-off sentiment over the coming months could require more nuanced stock-picking to drive outperformance. With cash flows and balances still near record levels, and profitability broadly lagging revenue growth, we believe that prudent capital allocation could be key to differentiation," updated the firm.
The screen by Jefferies included several stocks from the consumer sector.
In the restaurant category, Ruth's Hospitality (NASDAQ:RUTH) is called out. Jefferies said that while there will be some drag on the topline in a recessionary environment, at the moment Ruthâs Hospitality appears better positioned with the opportunity for sales recapture in business/tourism districts seen as a nice tailwind.
Among the Internet retail names, Booking Holdings (BKNG) is noted to have a strong cash position and buyback firepower.
The top defensive pick in gaming is Light & Wonder (LNW). The company's cash flow is expected to allow management to continue to be opportunistic in either further buybacks or potential tuck-in acquisitions.
After scanning hardlines stocks, Jefferies picked RH (RH) as a defensive play. RH's (RH) cash balance is observed to represent ~25% of the companyâs market capitalization and the retailer's profitability is called highly defensive.
Finally, Dollar General (DG) and Altria (MO) are mentioned as some classic defensive stocks that are expected to outperform during a tough macroeconomic backdrop.
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