Strong Earnings and Defensive Power Point to Long-Term Gains for This Sector

Is the economy turning over? It’s possible. Friday’s jobs data suggests that the slowdown is underway. And it may slide into a recession if left unchecked. That suggests that investors may want to lighten up on winning tech stocks.

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  • It also suggests that better investment returns may come from more defensive stocks going forward. These are companies that can continue to grow their earnings steadily, even in a declining economy. The latest earnings report suggest that some defensive plays are better than others.

    For instance, global beverage giant Constellation Brands (STZ), just reported mixed earnings. But shares quickly recovered their losses, and analysts remain bullish.

    Constellation shares are now flat over the past year. The company’s brands should continue to hold up well, even in a slowing economy.

    At current prices, shares trade for about 18 times earnings, a slight discount to the overall stock market.

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  • Action to take: Investors may like shares at current prices as a long-term holding. While Constellation pays a 1.6% dividend, Constellation has a history of growing that payout over time.

    For traders, the quick recovery in shares from mixed earnings suggests a bullish trend in place. The September $270 calls, last trading for about $4.80, could see mid-double-digit returns in the months ahead.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.

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