We recently compiled a list of the 10 Best Defensive Stocks To Buy Now. In this article, we are going to take a look at where New Oriental Education & Technology Group Inc. (NYSE:EDU) stands against the other defensive stocks.
Defensive stocks tend to remain stable and less affected by economic downturns. These companies operate in sectors that provide essential goods and services, which people need regardless of the economic climate. Defensive stocks mostly include stocks of companies among utilities, consumer staples, and healthcare sectors as they provide basic necessities of life. Companies in these sectors often show less volatility, and often provide steady dividends. They usually offer a safer investment choice during periods of market uncertainty.
US Stocks Surge But Experts Remain Cautious
U.S. stocks are having a great time, which is owed to strong economic data that has reassured investors. The S&P 500 and Nasdaq 100 have seen significant gains, as they are up 4.3% and over 6% over the last 5 days on August 15, respectively. The global markets have also recovered from recent losses, and the US broader market is back from the losses it faced in the first week of August. The investor sentiment remains strong and U.S. equities are seeing continuous inflows. Additionally, Fed officials are hinting at potential rate cuts which support optimism that the U.S. economy is on track for a soft landing.
However, some experts are still concerned about the future of the US economy and markets and hold a more conservative view. According to a July report by J.P Morgan, recent market trends have benefited large, high-quality companies, especially in tech and AI, which have resulted in high market concentration. However, maintaining this momentum in the second half of 2024 could be difficult due to high valuations and investor positioning. 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 steady at 2.4%, with improved recoveries in Western Europe and emerging markets, along with a rebound in the manufacturing sector. Despite this, core global inflation is projected to remain around 3% in 2024, which could limit the potential for policy easing. Kasman warned that achieving inflation control and rate normalization might weaken demand and could interact with political factors to cause further inflation and central bank tightening.
Leon Cooperman’s Perspective on the Current Conditions
On August 15, Omega Advisors chairman and CEO, Leon Cooperman shared his perspective on the current economic outlook with CNBC Money Movers. Cooperman expressed a cautious outlook on the economy, which is driven by two main factors. First, he is alarmed by the rapid increase in the U.S. national debt, which has doubled from about $17 trillion in 2017 to approximately $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 further added that neither political party is addressing this looming issue.
Secondly, Cooperman compared today’s market conditions to past periods of financial excess, such as the Nifty 50 era in the 1970s, when companies with extremely high valuations eventually went bankrupt. He noted that during those times, the 10-year bond yield was 6.5%, much higher than the current rate of around 3.9%. He believes that if the current bond rate is appropriate, market valuations aren’t too high. However, he suspects that interest rates are too low and anticipates a rise in long-term rates, particularly the 10-year Treasury yield.
While he expects the Federal Reserve to cut short-term rates, which could ease borrowing costs, he believes long-term rates will increase, leading to a decline in bond prices and potentially putting downward pressure on stock valuations. If long-term rates rise significantly, it could make the stock market less attractive and could possibly result in a market decline.
Even though the current year has shown healthy markets with a couple of corrections, Leon Cooperman’s expectations from the markets cannot be ignored. Cooperman has a track record of being one of the most successful investors of the past several decades. If they hold out to be true, investors might look toward more defensive sectors of the market.
Our Methodology
For this article, we used stock screeners to identify over 50 large to mega-cap stocks from defensive sectors such as consumer staples, utilities, and healthcare. We narrowed our list to 10 stocks with positive analyst sentiment and the highest average analyst price target upside as of August 16.
A student concentrate on their laptop in the library, taking advantage of an educational program online.
New Oriental Education & Technology Group Inc. (NYSE:EDU)
Stock Price as of August 16: $71.28
Average Analyst Price Target Upside as of August 16: 36.78%
New Oriental Education & Technology Group Inc. (NYSE:EDU) delivers private educational services in China. The company runs through four primary segments, Educational Services and Test Preparation Courses, Online Education and Other Services, Overseas Study Consulting Services, and Educational Materials and Distribution.
Its offerings include after-school tutoring for K-12 students, preparation courses for various tests, language training, and a range of online education options. Beyond academic tutoring, the company provides advanced learning systems and devices to enhance digital education experiences. Additionally, it offers consulting services for students pursuing studies abroad.
Through its Koolearn.com platform, the company delivers an extensive range of online education courses. The company offers its services through a broad network of learning centers, schools, and bookstores, combined with its online presence, reaching a large number of students.
New Oriental Education (NYSE:EDU) is demonstrating robust growth and an expansive business model that sets it apart from competitors focused only on online education. For the fiscal fourth quarter, the company reported a non-GAAP EPS of $0.22. It reported revenues of $1.14 billion, jumping 32.6% year-over-year. This growth was primarily driven by the success of its new educational initiatives and the expansion of its East Buy private label and live-streaming e-commerce ventures.
During the quarter, the company accelerated its expansion in cities with high growth potential, enhancing profitability through increased facility utilization. The company’s network of schools and learning centers grew significantly, reaching 1,025 locations by May 31, 2024, up from 911 in February 2024 and 748 a year earlier. This expansion includes 81 schools as of the end of May, which signifies its commitment to increasing its physical presence.
Additionally, New Oriental Education’s (NYSE:EDU) overseas test preparation and study consulting services saw growth of about 17.7% and 17.3% year-over-year, respectively. Domestically, the test preparation business for adults and university students also performed well, with a growth rate of approximately 16.4% year-over-year. This broad range of services and the ability to adapt to market demands highlight its strength and versatility.
For the first quarter of fiscal year 2025, the company expects strong revenue growth. It has projected total net revenues to range between $1.25 billion and $1.28 billion, which reflects a year-over-year increase of 31% to 34%. This optimistic forecast, combined with its ongoing expansion and successful business initiatives, suggests a promising future for New Oriental Education (NYSE:EDU) in the education sector.
As per the opinion of 31 analysts, New Oriental Education (NYSE:EDU) has a Strong Buy rating. The average price target of $97.50 implies an upside of 36.78% from the present levels, as of August 16. It is among our best defensive stocks to buy now.
Overall EDU ranks 4th on our list of the best defensive stocks to buy. While we acknowledge the potential of EDU as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than EDU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.