- Intuitive Surgical’s stock remains relatively resilient despite current market volatility.
- NRG energy continues to benefit from price improvements, greater grid efficiency and the Inflation Reduction Act.
- Defensive stocks are useful for coping with the current volatile environment.
Market volatility is back in the headlines after the Federal Reserve continued to raise interest rates at its last meeting. The Dow Jones dropped below 30,000 and joined the S&P 500 in bear market territory. As inflation continues to rise and employment figures remain low, it is almost certain that the next two Fed meetings will see rate hikes of 75 basis points, which will continue to put pressure on liquidity and thus financial assets. Investors can increasingly turn to defensive stocks, with long-term sustainable competitive advantages and consistent cash flows across their portfolio, if they want to allocate capital in times of volatility.
Consider the following two stocks:
Intuitive Surgical (NASDAQ: ISRG) is an American medical robotics company that designs and manufactures robotic products to improve clinical outcomes, and its most successful product remains the Da Vinci System, which is increasingly making its way into operating rooms. Medical device stocks are well positioned to grow over the next eight years, and the medical robotics market is expected to grow steadily at 16% per year over the same period, after which it could generate $44 billion in revenue. Despite the general sell-off in the market, the stock remains strong and is currently 15% lower than the broader market, which has fallen more than 20% on average.
On average, the medical industry has a better long-term economy. Especially as the average age increases worldwide, more people need medical care. In addition, the global healthcare industry is increasingly investing in technology to improve medical outcomes worldwide, benefiting companies like Intuitive Surgical. Global growth should help support momentum, especially as China, Japan and Asia continue to lead the way in demand, with growing economies and increasing levels of investment helping them move from traditional surgical instruments to modern devices.
ISRG has seen its revenue increase by 16% in the past five years and its earnings per share by 17%. In valuation terms, the company remains pricey with a P/E of 48x and a future P/E of 33x. And while investors may find these valuations a bit expensive, the consistency of growth and earnings means the market will continue to place a premium on the stock. One of the positives for the stock is that it has little to no debt, meaning it is unlikely to face any real problems during the current rising interest rate cycle. Consider the stock if you are looking for a long-term investment, with a company that produces consistent results and stable cash flow.
NRG Energy (NYSE: NRG) is a utility company in the unregulated energy space. The company revolves around an integrated energy company operating in Texas, East and West, United States. The company is involved in the production, sale and supply of electricity and related products and services to approximately 6 million residential, commercial, industrial and wholesale customers. It generates electricity using natural gas, coal, oil, solar, nuclear and battery storage
NRG Energy is increasingly investing in its smart grid to give its users more control over their power consumption. But despite all efforts, prices are rising in the energy sector, especially in the residential energy market. NRG energy remains central to the areas where it provides power, meaning revenues should be consistent and less volatile than other sectors. Results remained strong in the first quarters, and states such as Texas, where it operates large parts of its business, had an unusually hot summer, which in turn should help boost profits further in the quarters to come.
The company’s valuation remains relatively stable with a price-to-earnings ratio of 9x, and at the rate at which energy prices are rising, the share price could rise in the coming quarters. The company also pays a 3.55% dividend and has relatively manageable debt, with debt to equity of 1.5. NRG Energy will also benefit from the latest bills passed in Congress, most notably the Inflation Reduction Act, which will provide its funding for carbon reduction projects. Overall, the utilities sector remains solid despite the uncertain macroeconomic environment, making it suitable for those looking to overcome volatility.