UBS sees opportunities in these defensive stocks. They also pay dividends

Dividend Yield - PepsiCo

4.37%

PepsiCo's current dividend yield as of the latest report.

Dividend Yield - McDonald's

2.75%

McDonald's current dividend yield as reported.

Target EBITDA Synergies - WM

$300M by 2027

Projected EBITDA synergies from the integration of WM Healthcare Solutions.

§ 01 Executive Snapshot

What: UBS analysts highlight dividend-paying defensive stocks as attractive investment opportunities amidst market concentration.
Who: UBS, analysts Sean Burns, Dennis Geiger, Jon Windham, and companies like PepsiCo, McDonald's, Waste Management, and Willis Towers Watson.
Why it matters: The divergence in stock performance highlights potential for gains in traditionally lower-risk companies that are currently undervalued.

The gap between expensive and cheap defensive stocks is at its widest since 1990, approximately double its long-run average.
Low-risk stocks have a market-implied yield of 4.4% compared to 1.4% for high-risk stocks, indicating a significant valuation spread.
UBS recommends defensive stocks with a market cap of at least $5 billion, a beta of less than 0.5x, and negative correlation to mega-cap tech.

The current market is heavily driven by a few megacap tech companies, leading to lower correlations across broader stocks.
Historical trends show that valuation spreads between low-risk and high-risk stocks often precede positive returns for low-volatility investments.

Investors may shift focus towards undervalued defensive stocks, potentially leading to increased demand and price appreciation.
If the trend of low-risk stock outperformance continues, it could reshape portfolio strategies among institutional investors.

The concentration of market gains in megacap tech could limit upside potential for defensive stocks if market sentiment shifts.
Regulatory changes or economic downturns could impact the performance of traditionally stable sectors like consumer staples and healthcare.

Key upcoming earnings reports include PepsiCo on July 9 and ongoing performance assessments for McDonald's and Waste Management.
Monitoring changes in market correlations and volatility metrics will provide insight into the sustainability of defensive stock performance.

§ 07

What are defensive stocks?

Defensive stocks are typically lower-risk investments that tend to perform well during economic downturns, and they often pay dividends.

Why does UBS recommend dividend-paying defensive stocks?

UBS analysts believe these stocks are attractive investment opportunities amidst market concentration and are currently undervalued.

How does the market's current state affect defensive stocks?

The market is heavily driven by a few megacap tech companies, which has led to a significant valuation spread between low-risk and high-risk stocks.

When are key earnings reports for companies like PepsiCo and McDonald's?

PepsiCo's earnings report is scheduled for July 9, while McDonald's and Waste Management are under ongoing performance assessments.