U.S. markets suffered significantly on Aug 9 after comments from President Trump sparked off fresh trade-related worries. Some of his comments, where he said that no business would be conducted with Huawei were confusing, leading the White House to issue a clarification later.
More importantly, Trump seemed determine to continue America’s bruising trade war with China. Since these events could drastically dent investor confidence, picking value stocks with low beta looks like a smart option at this point.
Beta measures the tendency of a stock's returns to respond to market swings. Low-correlation stocks provide protection during turbulent times as they are less prone to day-to-day fluctuations.
Fresh Trade Rhetoric Spooks Markets
On Aug 8, markets recouped most of the losses incurred last week after China released encouraging trade data and acted to arrest the yuan’s plunge. However, fresh protectionist remarks from Trump spooked investors leading major benchmarks to end the week in the red. The Dow, S&P 500 and Nasdaq declined 0.8%, 0.5% and 0.6%, respectively, over last week.
On Friday, Trump created confusion by saying that the United States would no longer do conduct business with China. He added that this did not mean that the status quo vis a vis the company would be maintained “if and when we make a trade deal.” These statements led the White House to clarify that he was only referring to restrictions of U.S. government purchases of Huawei equipment.
In contrast, Trump’s stance on China remains completely unambiguous. He said that while trade talks with China were continuing, the Trump administration was “not ready to make a deal” but will “see what happens.”
According to him, China was eager to seal a deal but he was “not ready to do anything yet.” Referring to “Twenty-five years of abuse,” Trump said that he was in no hurry to reach an agreement.
How Trade Ties Worsened This Month
On Aug 2, President Trump announced that he would impose a new 10% duty on additional $300 billion worth of Chinese goods. These tariffs, effective Sep 1, will now target virtually all of China’s imports to the United States. China responded by letting the yuan fall to its lowest level in a decade on Aug 5. (Read: 5 U.S.-Focused Stocks to Buy on Fresh Trump Tariffs)
The People’s Bank of China attributed the plunge to Trump’s protectionist policies “as well as expectations of more tariffs on China.” Meanwhile, China asked state-owned enterprises to cease purchases of U.S. agricultural goods and threatened to levy tariffs on goods it had already imported.
Four devastating trading days were all it took to erase $1.4 trillion of the S&P 500’s stock value. Markets did stage a recovery on Aug 8, recouping most of the week’s losses. But Trump’s comments on Aug 9 are leading markets into troubled waters once again. As a result, volatility is likely to spike this week as well.
Trade tensions between the United States and China have undergone further escalation after Trump’s recent proclamation. With Trump bent on escalating trade tensions with China, such tensions are unlikely to die down soon.
Investors will have to grapple with turbulent market conditions in the interim. In such an event, it would be best to add safe bets to your portfolio in order to shore up gains.
This is why it makes good sense to pick value stocks with low beta, which could protect gains made recently. Our selection is also backed by a good Value Score and Zacks Rank.
We narrowed down our choices with the help of our new Style Score System.
Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best investment opportunities in the value investing space.
PennyMac Financial Services, Inc. PFSI provides financial services primarily in the United States.
PennyMac Financial Services sports a Zacks Rank #1 and has a Value Score of A. The stock has a beta value of 0.48. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 7.95, lower than the industry average of 10.27. It has a PEG ratio of 0.80, lower than the industry average of 1.59.
1st Constitution Bancorp FCCY is the bank holding company for 1st Constitution Bank, which offers a range of banking products and services in New Jersey.
1st Constitution Bancorp holds a Zacks Rank #1 and has a Value Score of B. The stock has a beta value of 0.21 and a P/E (F1) of 10.64x, lower than the industry average of 11.40. It has a PEG ratio of 1.33, lower than the industry average of 1.45.
Eagle Bancorp Montana, Inc. EBMT operates as a holding company for Opportunity Bank of Montana that provides retail banking services in Montana.
Eagle Bancorp Montana holds a Value Score of B. The stock has a beta value of 0.46 and a P/E (F1) of 10.72x, lower than the industry average of 11.34. It has a PEG ratio of 1.07, lower than the industry average of 1.38. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Computer Task Group, Incorporated CTG provides information technology solutions and staffing services in North America, Europe and India.
Computer Task Group, Incorporated holds a Zacks Rank #2 has a Value Score of A. The stock has a beta value of 0.48 and a P/E (F1) of 12.29x, lower than the industry average of 19.91. It has a PEG ratio of 0.82, lower than the industry average of 1.75.
City Office REIT, Inc. CIO is a real estate investment trust which focuses on acquiring, owning and operating office properties in the United States.
City Office REIT holds a Zacks Rank #2 and has a Value Score of B. The stock has a beta value of 0.46 and a P/E (F1) of 10.48x, lower than the industry average of 15.01. It has a PEG ratio of 1.31, lower than the industry average of 3.11.
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