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5 Stocks to Fall Back On Amid Lurking Government Shutdown

Zacks Investment Research

The unprecedented reversal in the stock market on Jan 16 signals at more choppy trading sessions ahead, thanks to fears of a possible federal government shutdown by the end of the week. The Republican-led Congress is facing numerous obstacles from fellow conservatives and many Democrats.

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5 Stocks to Fall Back On Amid Lurking Government Shutdown

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Traders also looked at the recent record-breaking run by major bourses as another sign that the market is getting too pricey and entering the overbought territory. Given such uncertainties, investing in sound stocks that are unfazed by market gyrations seems judicious.

Threat of a Government Shutdown Looms

U.S. stocks scaled to record highs last week, mostly on positive earnings results from banking majors Wells Fargo & Co (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM). They beat analysts’ estimates for revenues and earnings. However, this week, the broader market failed to sustain the gains as investors apprehend a government shutdown.

Republican-led Congress needs to pass a funding bill by Jan 19 to avert a government closure. But there are perils. Conservatives within the party want a hike in defense spending that such a bill will not provide. Meanwhile, Democrats might withhold their support until issues related to immigration policy are sorted out. Talks regarding shielding the Dreamers — immigrants brought into the country illegally as children — from deportation have come to a sudden halt between the parties.

President Trump, in the meanwhile, has expressed his displeasure toward the Deferred Action for Childhood Arrivals (DACA), an Obama-era immigration policy. He has repeatedly blamed the Democrats for such an executive order. The President argued that such a policy isn’t adequate and demanded a merit-based system of immigration as well as funding for a border wall with neighboring state Mexico.

But, if we look into last week, negotiations regarding an immigration policy managed to reach a conclusion with the President promising to sign whatever the congressional negotiators decide on. This was taken as a sign of progress in an already tense situation.

Having said that, here, we are again facing the possibility of a government shutdown. This makes us believe that shutdown threats are common to politicians. This is because it helps the governing party and the opposition to win over their supporters. After all, the governing party shows that their opposition doesn’t want them to work smoothly and meet their core targets.

The opposition also adopts this as a primary stand on an issue that is of utmost importance to them. Needless to say, party affiliations may change, but political dynamics more or less remain the same.


How to Play a Possible Government Shutdown?

To avoid an embarrasing shutdown, the Republicans rolled out a plan to fund the government for a short time. But, such a move is only expected to extend the deadline for a shutdown until Feb 16. So, the concern remains, with the markets apprehending a lot of gyration in the near future. Thus, such uncertainty calls for investors to build a strategy on low-risk assets and a combination of parameters that lead to better returns. The best way to go about doing this is by creating a portfolio of ultra-safe stocks.

They essentially have a low beta, which makes them less volatile than the markets they trade in. In this case, a low beta ranges from 0 to 1. They also have large market capitalization (a market capitalization value of $10 billion or more), which helps them provide steadily-increasing earnings growth without having much risk of collapsing. We have, thus, zeroed in on five such stocks that also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Union Pacific Corporation (NYSE:UNP), through its subsidiary Union Pacific Railroad Company, operates railroads in the United States. The company has a Zacks Rank #2 and a beta of 0.9. Union Pacific’s expected growth for the current year is 14.2%, higher than the industry’s projected growth of 9.9%.

EOG Resources Inc (NYSE:EOG), together with its subsidiaries, explores for, develops, produces, and markets crude oil and natural gas. The company has a Zacks Rank #1 and a beta of 0.98. EOG Resources’ expected growth for the current year is more than 100%, higher than the industry’s projected growth of 28.6%.

NVR, Inc. (NYSE:NVR) operates as a homebuilder in the United States. The company has a Zacks Rank #2 and a beta of 0.75. NVR’s expected growth for the current year is 42.5%, higher than the industry’s projected growth of 16.2%.

Facebook Inc (NASDAQ:FB) provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. The company has a Zacks Rank #2 and a beta of 0.68. Facebook’s expected growth for the current year is 37.6%, higher than the industry’s projected growth of 10.8%.

Darden Restaurants, Inc. (NYSE:DRI), through its subsidiaries, owns and operates full-service restaurants in the United States and Canada. The company has a Zacks Rank #1 and a beta of 0.2. Darden Restaurants’ expected growth for the current year is 16.4%, higher than the industry’s projected growth of 1.1%.

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