By Ian Salisbury
The stock market is starting to look shaky -- investors may want to consider defensive stocks like PepsiCo, Estée Lauder and Atmos Energy, that could help them ride out coming volatility.
While the S&P 500 is up 14% this year, lately investors have begun to question the health of the bull market. While the S&P 500 is up 14% this year, lately investors have begun to question the health of the bull market. Last week stocks snapped a three-week winning streak. The S&P 500 is about 2.3% off its Oct. 28 record. Tech stocks that have driven returns through much of the year are looking especially vulnerable, with the Nasdaq Composite off about 4% from its late October high.
With earnings season mostly in the books, one place to look for upside is stocks that delivered solid third-quarter results, according to Citi Research. In a note Friday, Citi screened for stocks that reported better-than-expected a third-quarter profit and "positively revised" fourth quarter and 2026 forecasts.
Amid a generally strong quarter, a large number of companies managed to accomplish this feat. Of the 418 that had reported third-quarter results by the time Citi did its analysis, 128 delivered what Citi called a beat-and-raise+.
The issue for investors is that a large majority of these top performers have ties to the AI or are in highly cyclical industries, making them less-than-ideal as hedges against a stock market dip. Many of the others were in the healthcare sector, a sector that has been struggling in the face of policy turmoil in Washington.
In fact, Citi found just four defensive companies that beat earnings and issued positive fourth-quarter and 2026 forecasts without ties to AI or healthcare: PepsiCo, Estée Lauder, utility Atmos Energy, and real estate investment trust Regency Centers.
In general, it has been a tough year for PepsiCo, the largest company on the list with a $194 billion market capitalization. Its namesake Pepsi soda has lost market share to competitors like Dr. Pepper and Sprite. Other PepsiCo brands like Doritos and Lays have faced inflation and consumers' growing attraction to health foods. All in all, shares are down about 5%.
Still, last month the company reported third-quarter earnings that edged estimates by about 1%, prompting a slew of Wall Street analysts to raise their price targets. On average, analysts expect sales to grow 3.4% next year and earnings to increase 5.6%.
One investor that is betting on PepsiCo is activist Elliott Management, which disclosed a $4 billion stake in September. Elliott is pushing to PepsiCo to outsource its low-margin bottling operations, following a playbook Coca-Cola used in 2017, among other changes.
Shares of Estée Lauder have fared much better in 2025, gaining around 22%. Last month, the company said third-quarter earnings beat expectations by more than 80%, thanks to strong results in its skin care and fragrance units.
Atmos Energy, a natural-gas distributor that operates in Texas, Louisiana and Mississippi, among other areas, beat third-quarter earnings forecasts by 8%. Regency Centers third-quarter funds from operations were in line with the average Wall Street forecasts, but it slightly beat Citi's own forecast, earning it inclusion on the list.
Write to Ian Salisbury at ian.salisbury@barrons.com
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November 10, 2025 16:45 ET (21:45 GMT)
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