We recently published a list of The 10 best defensive stocks to buy now. In this article, we take a look at the position of New Oriental Education & Technology Group Inc. (NYSE:EDU) compared to the other defensive stocks.
Defensive stocks tend to remain stable and are less affected by economic downturns. These companies operate in sectors that provide essential goods and services that people need regardless of the economic climate. Defensive stocks primarily include stocks of companies in the utilities, consumer goods, and healthcare sectors because they provide basic necessities of life. Companies in these sectors tend to have lower volatility and often pay stable dividends. They usually offer a safer investment option during times of market uncertainty.
US stocks rise sharply, but 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 significant gains as they gained 4.3% and over 6% respectively in the last 5 days ending August 15. Global markets have also recovered from recent losses, and the US market as a whole has recovered from the losses it suffered in the first week of August. Investor sentiment remains strong, and US stocks are seeing continuous inflows. Moreover, Fed officials are hinting at possible rate cuts, which supports optimism that the US economy is on track for a soft landing.
However, some experts remain concerned about the future of the U.S. economy and markets and take a more conservative view. According to a July report by JP Morgan, recent market trends have benefited large, high-quality companies, particularly in technology and AI, resulting in high market concentration. However, high valuations and investor positioning may make it difficult to maintain this momentum in the second half of 2024. The report says that while U.S. market volatility is currently low, it could rise if conditions change.
According to Bruce Kasman, global growth is stable at 2.4%, with Western Europe and emerging markets recovering better and the manufacturing sector picking up again. Despite this, global core inflation is expected to be around 3% in 2024, which could limit the potential for monetary easing. Kasman warned that controlling inflation and normalizing interest rates could weaken demand and, in interaction with political factors, cause further inflation and tightening of monetary policy by central banks.
Leon Cooperman’s view on the current conditions
On August 15, Omega Advisors Chairman and CEO Leon Cooperman shared his perspective on the current economic situation CNBC Money Transfer CompanyCooperman expressed a cautious outlook on the economy, driven by two main factors. First, he is alarmed by the rapid increase in the US national debt, which has doubled from about $17 trillion in 2017 to about $34-35 trillion today. He said that this level of debt growth, which outpaces economic growth, is unsustainable and could lead to a fiscal crisis. However, the exact timing of such a crisis is uncertain. He added that none of the political parties are addressing this looming problem.
Second, Cooperman compared today’s market conditions with past periods of financial excess, such as the Nifty 50 era in the 1970s, when companies with extremely high valuations eventually went bust. He noted that the 10-year bond yield was 6.5% then, significantly higher than the current rate of around 3.9%. He believes that market valuations are not too high if the current bond yield is reasonable. However, he suspects that interest rates are too low and expects a rise in long-term interest rates, particularly the 10-year Treasury yield.
While he expects the Federal Reserve to cut short-term interest rates, which could lower borrowing costs, he believes long-term interest rates will rise, causing bond prices to fall and potentially putting downward pressure on equity valuations. If long-term interest rates rise significantly, it could make the stock market less attractive and potentially lead to a market decline.
Even though the current year has shown healthy markets with some corrections, Leon Cooperman’s expectations for the markets cannot be ignored. Cooperman is considered one of the most successful investors of the last decades. If these expectations come true, investors could turn to more defensive market sectors.
Our methodology
For this article, we used stock screeners to identify over 50 large- and mega-cap stocks from defensive sectors such as consumer staples, utilities, and healthcare. We narrowed our list down to 10 stocks with positive analyst sentiment and the highest average analyst price target as of August 16.
A student concentrates on his laptop in the library and uses an online learning program.
New Oriental Education & Technology Group Inc. (NYSE:Educational institution)
Share price as of August 16: USD 71.28
Average analyst price target as of August 16: 36.78%
New Oriental Education & Technology Group Inc. (NYSE:EDU) provides private education services in China. The company is organized into four main segments: educational services and test preparation courses, online education and other services, study abroad consulting services, and teaching materials and distribution.
Its offerings include tutoring for students in grades 1 to 12, preparation courses for various tests, language training, and a range of online education options. In addition to academic tutoring, the company offers advanced learning systems and devices to enhance digital educational experiences. In addition, it offers consulting services for students studying abroad.
The company offers a wide range of online educational courses through its platform Koolearn.com. The company offers its services through a wide network of learning centers, schools and bookstores, which, combined with its online presence, enables it to reach a large number of students.
New Oriental Education (NYSE:EDU) has robust growth and an expansive business model that sets it apart from competitors that focus exclusively on online education. For its fiscal fourth quarter, the company reported non-GAAP earnings per share of $0.22. It reported revenue of $1.14 billion, up 32.6% year over year. This growth was primarily driven by the success of its new education initiatives and the expansion of its East Buy private label and live streaming e-commerce businesses.
During the quarter, the Company accelerated its expansion in high-growth cities and increased profitability through increased asset utilization. The Company’s network of schools and learning centers grew significantly, reaching 1,025 locations as of May 31, 2024, up from 911 in February 2024 and 748 a year earlier. This expansion includes 81 schools at the end of May, underscoring the Company’s commitment to increasing its physical presence.
In addition, New Oriental Education’s (NYSE:EDU) overseas test preparation and college counseling services recorded year-on-year growth of approximately 17.7% and 17.3%, respectively. Domestically, the adult and university student test preparation business also performed well, with a year-on-year growth rate of approximately 16.4%. This broad range of services and ability to adapt to market demand underscore the company’s strength and versatility.
The company expects strong revenue growth for the first quarter of fiscal 2025. It forecasts total net revenues to be between $1.25 billion and $1.28 billion, representing a year-over-year increase of 31% to 34%. This optimistic forecast, combined with continued expansion and successful business initiatives, suggests a promising future for New Oriental Education (NYSE:EDU) in the education sector.
According to 31 analysts, New Oriental Education (NYSE:EDU) has a Strong Buy rating. The average price target of $97.50 implies an upside potential of 36.78% from current levels as of August 16. It is one of our best defensive stocks to buy now.
Total EDU 4th place on our list of the best defensive stocks to buy. While we recognize EDU’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than EDU but trades at less than 5x earnings, read our report on the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.
