3 Safe Stocks to Beat Market Uncertainty
The failure of the Silicon Valley banks sent shock waves through the investment community, with many investors fearing a repeat of the financial meltdown in 2008-9. Everyone was racing to offload their bank stock holdings, making Monday quite the bloodbath for banking stocks. Come Tuesday, the reality began to sink in about this year being very different from that time and analysts and market watchers did their bit convincing investors that no such catastrophe was likely, especially given the government’s mitigative actions.
There was also other good news related to the CPI, which didn’t disappoint. As a result, some ground was regained. Today it seems there is more of the same with Credit Suisse stock being punished after the Swiss bank’s largest investor denied further financial assistance.
This is just an example of what could go wrong if sudden unforeseen events hit the market. The other situation, almost as depressing, could be negative news flow ensuring that the market continues to move sideways.
For example, the ongoing layoffs in tech that are spreading to other industries. It is not news any more that the tech sector is laying off big time. Facebook owner Meta Platforms has now announced a second round, and others like Alphabet, Microsoft, IBM, Spotify, Twitter, Lyft, Salesforce, HP, Workday, etc. are doing the same thing.
Tech layoffs are being taken with relative equanimity because of the excessive hiring during the pandemic. But job cuts at Goldman Sachs, Morgan Stanley, Citigroup, Coinbase, Tyson, as well as smaller operators from other sectors like Wayfair, Beyond Meat, Blue Apron and DoorDash are adding to the concern that we may have a recession after all.
Nobody can be blamed for a dash of pessimism about now. But as long as you’re playing for the long term and have done the necessary homework, you should be able to get to the other side of this with relative ease.
So what are some of the things you should be looking for when selecting stocks?
It should be obvious but it’s worth reminding that stocks with positive estimate revisions, those that are somehow positioned to grow this year and the next despite all the negatives, that belong to relatively attractive industries and also carry a Zacks #1 (Strong Buy) or #2 (Buy) rank could be considered. Especially when these stocks are also attractively valued. Let’s take a look at some examples:
Ribbon Communications Inc. RBBN
Plano, TX-based Ribbon Communications offers communications technology in the U.S., Europe, the Middle East, Africa, and the Asia Pacific. It operates through the Cloud and Edge, and IP Optical Networks segments.
The Zacks Rank #1 stock belongs to the Communication - Network Software industry (top 7% of more than 250 Zacks-classified industries). Analysts expect the company to grow both its revenue and earnings in 2023 and 2024. Its earnings are set to grow 127.3% in 2023 and 24.7% in 2024. In the last 30 days, the 2023 estimate has increased a couple of cents on average. The 2024 estimate has increased 11 cents (52.4%).
The shares may also be considered cheap since the price-to-sales (P/S) ratio is 0.73 and any number below unity indicates that investors are undervaluing its sales potential. Similarly, its P/E of 19.96X is trading at a 78.2% discount to the industry although at a slight premium to its median value over the past year.
Universal Insurance Holdings, Inc. UVE
Fort Lauderdale, FL-based Universal Insurance Holdings operates as an integrated insurance holding company in the United States. It develops, markets and underwrites insurance products for personal residential insurance.
Universal’s revenue and earnings are both expected to increase this year and the next. Earnings are expected to go from a loss of 41 cents to a profit of a dollar and 65 cents in 2023. Thereafter, it’s expected to grow another 45.5% in 2024. In the last 30 days, its 2023 estimate has increased 15 cents (10.0%) and 2024 estimate increased 40 cents (20.0%).
Universal trades at a P/S multiple of 0.44, which is very attractive both because it is below unity and because it is at a significant discount to the industry. Its P/E of 10.67X is at a 53% discount to the industry, although at a premium to its own median value over the past year.
JOYY Inc. YY
Singapore-based JOYY operates social media platforms primarily in China, U.S., UK, Japan, South Korea, Australia, the Middle East Southeast Asia. Some of its platforms are Bigo Live, a live streaming platform; Likee, a short-form video social platform; Hago, a casual game-oriented social platform; and imo, a chat and instant messaging application
2024 estimates are not yet available but in 2023, the company is expected to grow both revenue and earnings. Estimates for this year are up $1.46 (184.8%) in the last 30 days and represent 20.3% growth from 2022.
JOYY is also attractively valued. Its P/S multiple is 0.89X, which like UVE makes the shares attractive both on its own and with respect to the industry. Its P/E of 16.16X is also at a significant discount to the industry and also to its own median value over the past year.
3-Month Price Performnce
Image Source: Zacks Investment Research
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