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Deep Dive: If you’ve got the stock market jitters, here are 20 companies in two defensive sectors

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When investors expect economic growth to slow, interest in defensive sectors — health care and utilities — tends to perk up. This has been happening during the third quarter.

Below is a list of 20 favorite stocks in both sectors among Wall Street analysts.

Read: Goldman Sachs trims U.S. growth outlook

Here’s how the 11 sectors of the S&P 500 Index
SPX,
+0.50%

have been performing:

S&P 500 sector Total return – June 30 through Aug. 27 Total return – 2021 Total return – 2020 Total return – 3 years Total return – 5 years
Utilities 8.4% 11.0% 0.5% 42% 66%
Communications Services 7.7% 28.8% 0.0% 88% 90%
Information Technology 7.0% 21.7% 43.9% 119% 277%
Health Care 6.9% 19.5% 13.4% 55% 103%
Financials 6.3% 33.6% -1.7% 46% 121%
Real Estate 5.7% 30.3% -2.2% 55% 70%
Materials 4.4% 19.6% 20.7% 53% 96%
Consumer Staples 3.2% 8.4% 10.7% 46% 54%
Industrials 2.4% 19.2% 11.1% 44% 92%
Consumer Discretionary 1.3% 11.7% 33.3% 63% 140%
Energy -8.4% 33.3% -33.7% -23% -12%
 
S&P 500 Index 5.2% 21.2% 18.4% 64% 129%
Source: FactSet

During the third quarter, the utilities sector has been especially strong, especially when considering that it is a laggard for all of 2021. Health care has also made a good third-quarter showing, while performing much better for 2021. (All performance figures in this article include reinvested dividends.)

A look at forward price-to-earnings valuations points to a discount for the health-care sector:

Sector Forward P/E Average forward P/E – 20 years Current valuation to index Average valuation to index
Health Care 17.7 15.4 83% 98%
Utilities 20.0 14.8 93% 94%
S&P 500 Index 21.4 15.7
Source: FactSet

By these numbers, the health-care sector is trading for a discount to the full index that is notably higher than normal.

Meanwhile, the utilities sector on average is trading closer to the index than it has. The prolonged low-interest-rate environment may help explain the higher valuation for the utilities sector, which is associated with attractive dividend yields.

Then again, the stock listed below with the second-highest dividend yield is Merck & Co.
MRK,
+0.17%
.

Stock screens for health care and utilities

Starting with the 92 stocks in the S&P 500 health-care and utilities sectors, here are the 20 stocks with majority “buy” or equivalent ratings among analysts polled by FactSet that have the highest upside for the next year, implied by consensus price targets:

Company Industry Share “buy” ratings Closing price – Aug. 27 Consensus price target implied 12-month upside potential Dividend yield
Incyte Corp.
INCY,
+0.66%
Biotechnology 60% $75.68 $102.47 35% 0.00%
Centene Corp.
CNC,
-1.13%
Managed Health Care 85% $63.98 $85.47 34% 0.00%
Vertex Pharmaceuticals Inc.
VRTX,
+0.27%
Biotechnology 78% $199.92 $262.14 31% 0.00%
Cigna Corp.
CI,
-0.63%
Managed Health Care 91% $210.68 $275.76 31% 1.90%
Merck & Co. Inc.
MRK,
+0.17%
Pharmaceuticals 76% $76.30 $95.56 25% 3.41%
Baxter International Inc.
BAX,
+3.40%
Medical Specialties 53% $73.97 $92.56 25% 1.51%
Zimmer Biomet Holdings Inc.
ZBH,
-0.00%
Medical Specialties 79% $150.07 $187.58 25% 0.64%
AES Corp.
AES,
-0.29%
Electric Utilities 91% $24.19 $29.94 24% 2.49%
Edison International
EIX,
-0.39%
Electric Utilities 63% $57.53 $70.36 22% 4.61%
Humana Inc.
HUM,
+0.08%
Managed Health Care 61% $405.76 $494.00 22% 0.69%
Teleflex Inc.
TFX,
+0.75%
Medical Specialties 75% $388.22 $464.80 20% 0.35%
McKesson Corp.
MCK,
-0.09%
Medical Distributors 81% $201.12 $240.38 20% 0.93%
Anthem Inc.
ANTM,
-0.68%
Managed Health Care 74% $372.67 $438.90 18% 1.21%
AmerisourceBergen Corp.
ABC,
+0.09%
Medical Distributors 69% $119.89 $140.85 17% 1.47%
Steris PLC
STE,
+0.35%
Medical Specialties 83% $213.61 $249.60 17% 0.81%
Dentsply Sirona Inc.
XRAY,
-0.16%
Medical Specialties 60% $62.09 $72.54 17% 0.71%
Bristol-Myers Squibb Co.
BMY,
+0.92%
Pharmaceuticals 65% $66.60 $77.13 16% 2.94%
CVS Health Corp.
CVS,
+0.76%
Drugstore Chains 77% $83.71 $96.47 15% 2.39%
Sempra Energy
SRE,
-0.06%
Electric Utilities 63% $131.86 $151.07 15% 3.34%
Boston Scientific Corp.
BSX,
-0.19%
Medical Specialties 84% $44.80 $51.20 14% 0.00%
Source: FactSet

Click on the tickers for more about each company.

As always, a list based on analysts at brokerage firms is only a starting point. If you see any stocks of interest, you need to do your own research to form your own opinion about a company’s long-term prospects.

Here’s some additional information. Consensus revenue estimates through 2024 are available for 18 of the 20 companies, while they are available through 2025 for 13 of them. Here they are with the companies in the same order, with three-year and four-year expected compound annual growth rates (CAGR) to the right, where applicable. Figures are in millions of dollars.

Company Estimated revenue – 2021 Estimated revenue – 2022 Estimated revenue – 2023 Estimated revenue – 2024 Estimated revenue – 2025 Expected revenue CAGR – three years Expected revenue CAGR – four years
Incyte Corp.
INCY,
+0.66%
$2,841 $3,442 $3,989 $4,678 $5,432 18.1% 17.6%
Centene Corp.
CNC,
-1.13%
$123,825 $128,431 $134,238 $139,438 N/A 4.0% N/A
Vertex Pharmaceuticals Inc.
VRTX,
+0.27%
$7,287 $8,025 $8,553 $9,267 $9,922 8.3% 8.0%
Cigna Corp.
CI,
-0.63%
$169,301 $179,342 $190,397 N/A N/A N/A N/A
Merck & Co. Inc.
MRK,
+0.17%
$46,888 $51,066 $52,998 $55,392 $57,936 5.7% 5.4%
Baxter International Inc.
BAX,
+3.40%
$12,618 $13,243 $13,920 $14,623 $15,378 5.0% 5.1%
Zimmer Biomet Holdings Inc.
ZBH,
-0.00%
$8,111 $8,519 $8,856 $9,364 $9,688 4.9% 4.5%
AES Corp.
AES,
-0.29%
$9,807 $10,294 $10,305 N/A N/A N/A N/A
Edison International
EIX,
-0.39%
$14,419 $14,888 $15,462 $15,848 $16,371 3.2% 3.2%
Humana Inc.
HUM,
+0.08%
$82,792 $91,697 $100,029 $114,107 N/A 11.3% N/A
Teleflex Inc.
TFX,
+0.75%
$2,821 $2,999 $3,216 $3,317 $3,575 5.6% 6.1%
McKesson Corp.
MCK,
-0.09%
$248,994 $257,348 $269,939 $288,567 $303,454 5.0% 5.1%
Anthem Inc.
ANTM,
-0.68%
$137,121 $150,049 $160,282 $183,364 N/A 10.2% N/A
AmerisourceBergen Corp.
ABC,
+0.09%
$217,891 $239,232 $253,445 $272,019 N/A 7.7% N/A
Steris PLC
STE,
+0.35%
$4,221 $4,940 $5,286 $5,630 N/A 10.1% N/A
Dentsply Sirona Inc.
XRAY,
-0.16%
$4,287 $4,508 $4,710 $5,066 $5,335 5.7% 5.6%
Bristol-Myers Squibb Co.
BMY,
+0.92%
$46,449 $48,556 $50,243 $51,282 $51,184 3.4% 2.5%
CVS Health Corp.
CVS,
+0.76%
$283,269 $295,651 $309,494 $322,225 $337,416 4.4% 4.5%
Sempra Energy
SRE,
-0.06%
$12,117 $12,558 $12,912 $13,220 $13,352 2.9% 2.5%
Boston Scientific Corp.
BSX,
-0.19%
$12,029 $12,978 $13,977 $14,932 $15,902 7.5% 7.2%
Source: FactSet

The sales estimates are for calendar years — some companies’ fiscal years don’t match the calendar.

Moving on to earnings estimates, consensus earnings-per-share estimates are available through 2024 for all 20 companies and available through 2025 for 14 of them.

Here they are, with expected CAGR:

Company Estimated EPS – 2021 Estimated EPS – 2022 Estimated EPS – 2023 Estimated EPS – 2024 Estimated EPS – 2025 Expected EPS CAGR – three years Expected EPS CAGR – four years
Incyte Corp.
INCY,
+0.66%
$2.10 $3.64 $4.80 $6.38 $8.53 44.9% 42.0%
Centene Corp.
CNC,
-1.13%
$5.19 $5.69 $6.55 $8.19 N/A 16.4% N/A
Vertex Pharmaceuticals Inc.
VRTX,
+0.27%
$12.27 $13.11 $13.93 $15.03 $16.09 7.0% 7.0%
Cigna Corp.
CI,
-0.63%
$20.30 $22.58 $25.58 $26.56 N/A 9.4% N/A
Merck & Co. Inc.
MRK,
+0.17%
$5.57 $6.51 $6.99 $7.90 $8.53 12.3% 11.2%
Baxter International Inc.
BAX,
+3.40%
$3.53 $3.99 $4.48 $4.78 $5.09 10.7% 9.6%
Zimmer Biomet Holdings Inc.
ZBH,
-0.00%
$7.79 $8.71 $9.53 $10.35 $10.84 9.9% 8.6%
AES Corp.
AES,
-0.29%
$1.54 $1.67 $1.80 $1.90 $2.08 7.1% 7.8%
Edison International
EIX,
-0.39%
$4.52 $4.64 $4.91 $5.13 $5.50 4.3% 5.0%
Humana Inc.
HUM,
+0.08%
$21.57 $24.58 $27.86 $32.66 N/A 14.8% N/A
Teleflex Inc.
TFX,
+0.75%
$12.98 $14.62 $16.50 $19.13 $21.35 13.8% 13.3%
McKesson Corp.
MCK,
-0.09%
$19.48 $21.03 $23.05 $24.75 $26.66 8.3% 8.2%
Anthem Inc.
ANTM,
-0.68%
$25.62 $28.56 $32.32 $38.54 N/A 14.6% N/A
AmerisourceBergen Corp.
ABC,
+0.09%
$9.55 $10.77 $11.59 $12.43 N/A 9.2% N/A
Steris PLC
STE,
+0.35%
$7.34 $8.44 $9.32 $10.89 N/A 14.0% N/A
Dentsply Sirona Inc.
XRAY,
-0.16%
$2.89 $3.22 $3.61 $4.37 $5.34 14.8% 16.6%
Bristol-Myers Squibb Co.
BMY,
+0.92%
$7.49 $8.12 $8.56 $8.74 $8.67 5.3% 3.7%
CVS Health Corp.
CVS,
+0.76%
$7.77 $8.24 $8.93 $9.40 $10.19 6.5% 7.0%
Sempra Energy
SRE,
-0.06%
$8.13 $8.47 $8.93 $9.34 $9.76 4.7% 4.7%
Boston Scientific Corp.
BSX,
-0.19%
$1.61 $1.87 $2.11 $2.35 $2.61 13.5% 12.8%
Source: FactSet

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