Growing trade dispute between the United States and countries around the world have reignited concerns over commerce, economic growth and political stability, unnerving investors. Trump’s anti-trade policies characterized by tariff threats have not only disturbed the nine-year bull run but could also lead to a slowdown in global economic growth. According to the International Monetary Fund, the trade spat has clouded a benign outlook for the global economy, which is on track to grow at its fastest pace since 2011 this year and the next.
Amid trade tensions, domestic fundamentals appear sound, compelling investors to remain invested. The U.S. economy has entered its second-longest expansion phase since 1785, thanks to higher consumer spending, rising consumer confidence, still-low borrowing cost, growing wages, and a solid job market.
In particular, the United States added a robust 223,000 new jobs in May, pushing the unemployment rate to an 18-year low of 3.8%. Consumer spending rose the most in five months in April while consumer confidence rebounded near an 18-year high in May. Meanwhile, manufacturing expanded at a faster pace in May and order backlogs grew the most in 14 years. With this, American manufacturing is enjoying a 21-month long winning streak. So clearly, all the latest data point signal good times for the domestic economy.
Further, stronger earnings and the new tax legislation are adding to the bullishness in the market. The massive $1.5-trillion tax cut will perk up the economy and save billions for corporations, boosting job growth and earnings.
Given the domestic bullish trends and heightened fears of a trade war, we have highlighted some stock-picking strategies from the top-ranked cohort for investors that could prove extremely beneficial, reducing the risk of a downside:
Low-Beta Stocks
Low-beta stocks exhibit greater levels of stability and usually lose less when the market is crumbling. Though these have lesser risks and lower returns, the stocks are considered safe and resilient in a choppy market.
Pilgrim's Pride Corporation PPC having beta of 0.12 seems a good bet in this category. Based in Greeley, CO, it is one of the largest chicken companies in the United States, Mexico and Puerto Rico. It has expected earnings growth of 5.19% for this year. The stock carries a Zacks Rank #2 (Buy) and has a VGM Score of B.
Value Stocks
Value stocks have proven to be outperformers over the long term and are less susceptible to trending markets. These stocks have strong fundamentals — earnings, dividends, book value and cash flow — that trade below their intrinsic value and are undervalued. These have the potential to deliver higher returns and exhibit lower volatility than their growth and blend counterparts.
The Idaho-based Micron Technology Inc MU is one of the leading worldwide providers of semiconductor memory solutions. It has a Value Score of A and an estimated earnings growth of 132.46% for the fiscal year (ending August 2018). The stock has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Small-Cap Stocks
Small-cap stocks have been the leaders this year outperforming the larger ones. This is because small-cap stocks have less international exposure and generate most of their revenues from the domestic market. These pint-sized stocks are less vulnerable to a trade war or any other political issue and could better insulate investors from Trump’s protectionist stance.
The California-based Turtle Beach Corporation HEAR could be an intriguing choice given its projected earnings growth of 504.17% for this year. This is an audio technology company that provides various gaming headset solutions for various platforms, including video game and entertainment consoles, handheld consoles, personal computers, and mobile and tablet devices under the Turtle Beach brand. The stock has a Zacks Rank #1 and VGM Score of A.
Quality Stocks
Quality investing also seeks safety and protection against volatility. Quality stocks tend to outperform as these are rich in value characteristics with healthy balance sheets, high return on capital, low volatility, elevated margins and a track of stable or rising sales and earnings growth.
Based in Luxembourg City, Ternium S.A. TX is the leading producer of flat and long steel products of Latin America and consolidates the operations of the steel companies Hylsa in Mexico, Siderar in Argentina and Sidor in Venezuela. It has a low debt/equity ratio of 0.28, five-year historical EPS growth of 39.39%, an estimated growth rate of 23.47% for sales and 35.92% for earnings this year, and a dividend yield of 3.01%. The stock further belongs to a top-ranked Zacks industry (top 22%), and sports a Zacks Rank #1 and VGM Score of A.
Dividend Stocks
The dividend-paying securities are the major sources of consistent income for investors when returns from the equity market are at risk. This is especially true as these stocks offer the best of both these world’s — safety in the form of payouts and stability in the form of mature companies that are less volatile to the large swings in stock prices. The companies that offer dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.
While there are several top-ranked options available in the space, Virginia-based Morgan Stanley MS, having a strong history of dividend growth, seems to be a good pick. The company is a preeminent global financial services firm that maintains leading market positions in each of its three primary businesses: securities; asset management; and credit services. Though the yield is not much high at 1.95%, the stock has five-year historical dividend growth of 43.83% and estimated earnings growth of 31.11%. Morgan Stanley carries a Zacks Rank #2 and has a VGM Score of B.
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