These 2 defensive stocks deserve a look

These 2 defensive stocks deserve a look

Making the right decision in the investment market is not an easy task. What investors need here is a way to cut through the noise, take the raw deluge of stock data and reduce it to a pattern, a viable point of information that can point to potential winners in the markets. That’s where TipRanks Smart Score comes in, a data tool that fills that niche.

The Smart Score takes the collected data from the stock market and turns it into action, categorizing it and scoring each stock based on a series of 8 factors. Each factor is known to correlate with positive performance. The Smart Score algorithm takes all 8 factors together and distills them into a single score on a scale of 1 to 10, giving investors a clear signal.

Combine that now with the classic defensive stance for a period of market instability, the dividend stock. High-yield dividends offer a degree of protection from market downturns and inflationary economic environments, making them a popular choice for defensive-minded investors.

We opened up the platform to find stocks that offer the best of both worlds – a “perfect 10” from Smart Score and a dividend yield of over 7%. Are These the Right Stocks to Go All-In? A look at the data and the analyst commentary points us to an answer.

chord energy (CHRD)

The first “perfect 10” stock we’ll look at is Chord Energy, a mid-cap hydrocarbon exploration company. This company operates in the Williston Basin of North Dakota and Montana where it is focused on organic drilling activities and horizontal fracking to release crude oil reserves. Chord is a top producer in Williston and produced 172,500 barrels of oil equivalent per day in 3Q22.

Strong production has led to increasing revenues. Chord grossed $1.19 billion in the third quarter, up about 50% sequentially and an impressive 196% year over year. Bottom line, at $7.20 per diluted share, it more than doubled the diluted EPS of $3.16 reported in 3Q21. However, it was below the forecast of $8.35.

On a cash basis, Chord reported net income from operations of $941.6 million and net cash from operations of $783.6 million. The company’s cash on hand as of September 30 was $658.9 million; This exceeded the company’s $400 million in debt.

The solid balance sheet allows Chord to participate in a strong capital return program for investors. The company repurchased 1.2 million shares for a total of $125 million during the third quarter and declared a basis-plus-variable dividend to common shareholders. The declared dividend of $3.67 per share includes a base of $1.25 and a variable of $2.42. The base dividend is $5 annually and yields 3%; With the variable, it is annualized to $14.68, yielding a more robust 9.3%.

This stock has caught the eye of Truist’s 5-Star Analyst Neal Dingmann, who writes, “We forecast that Chord will continue to be the leading E&P shareholder guide in the mid-cap space, with its total payout percentage increasing with each of the largest producers can compete …. CHRD’s FCF delivery strategy is leveraged to return cash flow to its shareholders, resulting in the recently declared variable dividend of $3.67/sh. We believe there is additional scope for CHRD to proceed with a sustained share repurchase plan consisting of a base dividend of at least $1.25/sh and potentially higher than the variable dividend mentioned above. While the Company’s $125 million in buybacks in Q3’22 was opportunistic, we expect this program to continue well into 2023.”

Dingmann’s comments support his buy rating on the stock, while his price target of $214 implies a 38% upside potential over the next 12 months. (To see Dingmann’s track record, click here)

Chord Energy has shelved 5 recent analyst reviews and they are unanimously positive for a strong consensus analyst rating on the stock. The average price target here is $197.60, which indicates a 27% increase from the current trading price of $155.05. (See CHRD stock analysis on TipRanks)

Hess Midstream Operations (HESM)

Next is a midstream company, Hess, another Williston Basin operator. However, where Chord above is a manufacturing company, Hess works in the transportation of hydrocarbon products from the wellhead to the distribution points — the midstream sector. Hess assets include gathering pipelines for crude oil, natural gas and water, and a variety of natural gas and crude oil processing and storage facilities, and terminal facilities for export.

Hess posted a jump in volume in the third quarter of ’22, which was reflected in the company’s financial results. Total revenues were $334.8 million, a 10% increase over the prior year, resulting in net income of $159.4 million, while net cash from operations was $234.7 million -dollars reached. Bottom line, net income attributable to Hess Midstream Partners LP was $23.2 million, or 53 cents a share. EPS increased 39% year over year.

In October, the company announced its dividend of $0.5627 per common share for the third quarter. This was a modest 1.2% increase from the second quarter and a 5% increase from the year-ago period. On an annual basis, the dividend pays $2.25 per common share and yields 7.9%. The dividend was last paid on November 14.

Covering Hess Midstream for JPMorgan, analyst Jeremy Tonet sees the company in a solid position to bring returns to investors. He writes, “HESM has robust long-term fee-based contracts backed by MVCs and built-in fee recalculation mechanisms to accommodate volume deficiencies. Producer sponsor HES holds a substantial position in the core of the Bakken with a deep well inventory and plans to ramp up production to ~200 mboed (and stabilize thereafter). HESM has been consistently committed to returning cash to shareholders, both through sponsor unit buybacks and a commitment to increasing the payout by ~5% per year through at least 2024.”

Based on this stance, Tonet rates the shares as Overweight (a Buy) and sets a price target of $34 to hint at upside potential of 19% by next year. (To see Tonet’s track record, click here)

This mid cap midstreamer has received 3 ratings from analysts at The Street, all of which are positive supporting a Strong Buy consensus rating on the stock. HESM has a current price of $28.63 and an average price target of $35, which represents an upside potential of 22% over the next 12 months. (See HESM Stock Prediction on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important that you do your own analysis before making any investment.

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