We recently compiled a list of “The 10 Best Defensive Stocks to Buy Now,” and in this article, we'll take a look at how New Oriental Education & Technology Group Inc. (NYSE:EDU) stands up against other defensive stocks.
Defensive stocks are stable and less affected by economic downturns. These companies operate in sectors that provide necessities and services that people need regardless of the economic climate. Defensive stocks primarily include stocks of companies in the utilities, consumer staples, and healthcare sectors that provide the basic necessities of life. Companies in these sectors tend to have less volatility and pay stable dividends. They are usually a safer investment option during times of market uncertainty.
US stocks surge, experts remain cautious
US stocks are doing well, thanks to strong economic data that has reassured investors. The S&P 500 and Nasdaq 100 have posted strong gains in the past five days ending August 15, recording gains of over 4.3% and 6%, respectively. Global markets have also recovered from recent declines, and the overall US market has also recovered from the declines in the first week of August. Investor sentiment remains strong, with inflows continuing into US stocks. Moreover, Fed officials have hinted at a possible interest rate cut, which has bolstered optimism that the US economy is headed for a soft landing.
However, some experts remain concerned about the future of the US economy and markets and take a more conservative view. According to a July report from JP Morgan, recent market trends have favored large, high-quality companies, especially in the tech and AI sectors, resulting in increased market concentration. However, with high valuations and investor positioning, it may be difficult to maintain this momentum in the second half of 2024. The report noted that US market volatility is currently low but could rise if conditions change.
Global economic growth is stabilizing at 2.4%, with recoveries in Western Europe and emerging markets and a rebound in manufacturing, according to Bruce Kassman. However, core inflation is expected to remain around 3% in 2024, potentially limiting the scope for policy easing. Kassman warned that achieving inflation containment and interest rate normalization could weaken demand and interact with political factors to trigger further inflation and central bank tightening.
Leon Cooperman's take on the current situation
On August 15, Leon Cooperman, chairman and CEO of Omega Advisors, shared his views on the current economic outlook with CNBC Money Movers. Cooperman offered a cautious outlook for the economy, which is driven by two main factors. First, he is concerned about the skyrocketing national debt in the United States, which has doubled from about $17 trillion in 2017 to about $34-35 trillion today. He said that this level of debt growth outpacing economic growth is unsustainable and could lead to a fiscal crisis. However, it is unclear when such a crisis would occur. He added that neither political party has addressed this pressing issue.
Second, Cooperman compared the current market situation to previous periods of financial excess, such as the Nifty 50 era of the 1970s, when highly valued companies eventually collapsed. He noted that the 10-year Treasury yield was 6.5% at the time, much higher than the current roughly 3.9%. He believes that if current bond yields were adequate, market valuations would not be so high. However, he suspects that interest rates are too low and sees a rise in long-term interest rates, especially the 10-year Treasury yield.
He expects the Fed to cut short-term interest rates, easing borrowing costs, but believes that longer-term interest rates could rise, leading to lower bond prices and putting downward pressure on stock prices. If long-term interest rates rise significantly, the stock market could become less attractive and the market could fall.
While the market has remained healthy this year despite some corrections, it's hard to ignore Leon Cooperman's market expectations. Cooperman has a track record as one of the most successful investors of the past few decades. If those expectations hold true, investors may turn to more defensive sectors of the market.
Our Methodology
For this article, we used a stock screener to identify over 50 large to mega-cap stocks across defensive sectors such as consumer staples, utilities, and healthcare. We narrowed the list to 10 stocks with positive analyst sentiment and the highest average analyst price target upside as of August 16.
Students are concentrating on their laptops in the library and taking advantage of online educational programs.
New Oriental Education & Technology Group (NYSE:EDU)
Stock price as of August 16: $71.28
Analyst average target price increase as of August 16: 36.78%
New Oriental Education & Technology Group Inc. (NYSE:EDU) provides private education services in China. The company operates through four main segments: educational services and exam preparation courses, online education and other services, overseas study consulting services, and educational materials and distribution.
The company's services include after-school tutoring for K-12 students, test prep courses, language training, and a variety of online education options. In addition to academic tutoring, the company offers advanced learning systems and devices to enhance the digital education experience. Additionally, the company offers consulting services for students studying abroad.
The company offers a wide range of online educational courses through its Koolearn.com platform. The company combines its online presence with an extensive network of learning centers, schools and bookstores to serve a large number of students.
New Oriental Education (NYSE:EDU) is demonstrating strong growth and an expansive business model that sets it apart from competitors that focus solely on online education. The company reported fourth-quarter non-GAAP EPS of $0.22. Revenue was $1.14 billion, up 32.6% year over year. Growth was primarily driven by the success of new education initiatives and the expansion of East Buy's private label and livestreaming e-commerce businesses.
During the quarter, the company accelerated its expansion in cities with high growth potential, enhancing profitability through increased facility utilisation. The company's network of schools and learning centres will grow significantly, reaching 1,025 locations by May 31, 2024, from 911 locations in February 2024 and 748 locations a year ago. This expansion includes 81 schools as of the end of May, signalling the company's commitment to expanding its physical presence.
Additionally, New Oriental Education's (NYSE:EDU) overseas test preparation and study consulting services grew approximately 17.7% and 17.3%, respectively, year-over-year. Domestically, its test preparation business for adults and college students also performed well, growing approximately 16.4% year-over-year. This breadth of services and ability to adapt to market demands highlights the company's strength and versatility.
The company is forecasting significant revenue growth in the first quarter of fiscal 2025. It expects total net revenue to be in the range of $1.25 billion to $1.28 billion, reflecting a 31% to 34% increase year over year. This optimistic forecast, coupled with continued expansion and successful business initiatives, suggests that New Oriental Education's (NYSE:EDU) future in the education sector is promising.
According to the opinions of 31 analysts, New Oriental Education (NYSE:EDU) is rated a “Strong Buy”, with an average target price of $97.50, suggesting an upside of 36.78% from the levels as of August 16. This makes it one of the best defensive stocks to buy right now.
Overall, EDU ranks #4 on our list of best defensive stocks to buy. While we acknowledge the potential of EDU as an investment, we believe AI stocks have a better chance of delivering higher returns in the short term. If you're looking for AI stocks that are more promising than EDU but still trade at less than 5x EDU's share price, check out our report on the cheapest AI stocks.
Read next: $30 Trillion Opportunity: The 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley, Jim Cramer Says NVIDIA Has 'Become a Wasteland'.
Disclosures: None. This article was originally published on Insider Monkey.
