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5 Safe Stocks to Survive a Turbulent Market

Given the market volatility, let's take a look at four stocks that survived the onslaught and even surpassed market expectations.

Last week, Wall Street witnessed the worst start to a December in a decade, owing to an array of macroeconomic issues that dragged the equity markets down. Fresh tensions following signs of a yield curve inversion, poor November job gains coupled with prolonged nervousness among investors about U.S.-China trade relations dampened Wall Street’s performance significantly.

Last week, the Dow Jones Industrial Average fell 4.5%, the broader S&P 500 declined 4.6% and the tech-laden Nasdaq Composite Index slipped 4.9%. Per the Dow Jones Market Data, these dips marked the biggest weekly losses for the indexes since March. The fall pushed Dow and S&P 500 back into negative territory for the rest of the year while Nasdaq has managed to gain 1% year to date.

Given the current market scenario, it would be prudent to invest in low-beta, safe stocks that can generate decent dividends.Beta measures the tendency of a stock's returns to respond to market swings. Low correlation stocks provide protection during turbulent times as these are less prone to day-to-day fluctuations.

Unimpressive November Employment Data

Less-than-expected increase in new job additions and monthly wages in November have made investors jittery, sparking fears of a slowing economy. Non-farm payrolls increased by 155,000 compared with the consensus estimate of 198,000.

While unemployment rate remained unchanged at its 49-year low of 3.7% in November, real unemployment rate in the country, called U6, rose from 7.4% in October to 7.6%. The yearly increase in average hourly earnings remained flat at 3.1% while monthly wage growth of 0.2% fell behind economists’ expectations of 0.3%.

Yield-Curve Inversion Spooks Bourses

On Dec 3, U.S. government bond yield on its 3-year Treasury note surpassed its return on the 5-year Treasury note. The trend continued the next day, with the benchmark 2-year Treasury note hovering at 2.799% against the 5-year Treasury note’s return of 2.79%. Returns on other longer-dated securities declined too, with the 10-year Treasury yield dipping below 3%.

Such a scenario, termed as a yield curve inversion, is usually indicative of a serious economic slowdown since short-term returns are higher than long-term ones. This yield curve inversion is the result of investors betting on longer-dated bonds, which reflects their pessimism about short-term economic growth.

In an expanding economy, investors are confident about the future, which enables them to borrow money at low interest rates and invest it in securities that they believe will grow, thus giving profitable returns.

Although recent volatility in equity markets has not deferred Fed from its path of rate hikes, backed by low unemployment and strong economic growth, the central bank is likely to be cautious regarding the pace of rate hikes after December.

U.S.-China Trade War Affecting Investor Sentiment

While the United States and China  agreed to a three-month tarrif ceasefire, investors seek an end to the tariff war.

Recent comments from U.S. Trade Representative Robert Lighthizer however reduce expectations of any extensions in the negotiation period and could be indicative of further tariff impositions on Chinese products by the United States.

In addition, the recent detention of Meng Wanzhou, Chinese electronics giant Huawei’s chief financial officer, has enraged China. The Asian nation summoned the U.S. ambassador to Beijing on Dec 9 to object her arrest by Canada, which was carried out at Washington’s order.

Stocks to Buy

It would be ideal to add stocks from sectors like utilities and consumer staples to your portfolio at the moment as these are safe investments. The following stocks either carry a Zacks Rank #1 (Strong Buy) or #2 (Buy) and have beta value lower than 1.

Consumer Staples

Vector Group Ltd. VGR primarily engages in the manufacturing and sale of cigarettes and the sale of information processing systems.. Vector Group has a beta of 0.27 anda dividend yield of 13.8%. The company’s Zacks Consensus Estimate for the current year has witnessed 23.8% increase over the past two months.  The company carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Archer Daniels Midland Company ADM procures, transports, stores, processes, and merchandises agricultural commodities and products. The company carries a Zacks Rank #2. Archer Daniels has a beta of 0.98 anda dividend yield of 3%. The company’s Zacks Consensus Estimate for the current year has witnessed 3.8% rise over the past 60 days.

McCormick & Company, Incorporated MKC manufactures, sells and distributes seasoning mixes, spices, condiments, and other similar products. The company carries a Zacks Rank #2. McCormick has a beta of 0.36 anda dividend yield of 1.4%. The company’s Zacks Consensus Estimate for the current year has remained unchanged in the past two months.

Utilities

American Electric Power Company, Inc. AEP is one of the largest investor-owned electric public utility holding companies in the United States. The company carries a Zacks Rank #2. American Electric Power has a beta of 0.01 anda dividend yield of 3.4%. The company’s Zacks Consensus Estimate for the current year has witnessed 1% increase over the past 60 days.

Pinnacle West Capital Corporation PNW is an investor-owned electric utility holding company based in Phoenix, AZ. The company carries a Zacks Rank #2. Pinnacle West Capital has a beta of 0.08 anda dividend yield of 3.3%. The company’s Zacks Consensus Estimate for the current year has witnessed 0.7% rise over the past two months.

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American Electric Power Company, Inc. (AEP) : Free Stock Analysis Report
 
Pinnacle West Capital Corporation (PNW) : Free Stock Analysis Report
 
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Vector Group Ltd. (VGR) : Free Stock Analysis Report
 
Archer Daniels Midland Company (ADM) : Free Stock Analysis Report
 
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