U.S retail sales fell in September, indicating that the trade war has taken a toll on consumers. September’s manufacturing data also showed contraction and both data are pointing toward an economic slowdown. Further, emerging political issues between the United States and China clouded investors’ sentiment.
In this highly volatile market scenario, investors should move toward purchasing safer defensive stocks. Here are the top five defensive stocks that can provide stable returns.
Poor Economic Data
The health of the U.S. economy that rests on the strength of U.S. consumers has also declined. As per the government’s report on Oct 16, U.S. retail sales fell 0.3% in September, for the first time in seven months. However, a revision in U.S. retail sales in August was reported. Retail sales were raised to 0.6% from the original reading of the 0.4% increase.
In September, retail sales were weighed down by a 0.9% fall in auto sales, which is the biggest drop in eight months. Sales at gas stations declined 0.7%, which is mostly due to the cheaper gasoline price.
Softness was reported in other sectors too. Sales at building materials stores dropped 0.1%, while hobby, musical instrument and book stores posted a 0.1% drop in sales. Online and mail-order retail sales also saw a drop of 0.3% for first time this year. Decrease in retail sales indicate that consumers are worried about the consequences of the trade war and hence restraining from spending.
Earlier this month, the Institute for Supply Management’s (ISM) manufacturing index fell deeper into contraction. The ISM’s factory index slipped to 47.8 in September, which is the lowest since June 2009. The reading reported on Oct 1 clearly indicates a downturn and spooked investors, putting major benchmarks in negative territory.
Looming Geopolitical Tension
Investors got a temporary relief after Oct 11’s U.S.-China high level talk that led to the announcement of a “Phase One” deal. This had eased the prevailing trade war tensions but President Donald Trump on Oct 16 said that he may not sign any trade deal with China before he meets China’s President Xi Jinping at November’s APEC forum in Chile.
The balance got tipped after the U.S. House of Representatives on Oct 15 passed three bills overnight to support pro-democracy protesters in Hong Kong. China vowed and threatened to retaliate over America’s interference in their domestic issue. The three bills support the right of individuals to protest, allow the United States to check on China’s influence over the territory and prevents U.S. weapons from being used against protestors by Chinese police.
If the bills get passed as law, the “phase one” deal will be out of question and may damage all progress made in the U.S.-China trade talk.
5 Defensive Stocks to Buy
The aforesaid factors are impacting the market deeply, making it highly volatile. Investors should now invest in defensive stocks that have a stable performance in any market gyration.
Defensive stocks like utilities, consumer staples and healthcare have stable earnings regardless of market condition. These stocks stay in demand irrespective of the business cycle as they are products or services of basic necessity. Even when consumers are spending less, demand for these products is unaffected as these products are required for people to survive.
We have thus shortlisted five such stocks that not only flaunts a Zacks Rank #1 (Strong Buy) or 2 (Buy).
NRG Energy, Inc. NRG is a publicly traded company engaged in production, sale and delivery of energy to residential, industrial and commercial consumers across the United States. The company’s expected earnings growth rate for the current year is 61.4%, above the industry’s projected rally of 5.1%. The Zacks Consensus Estimate for current-year earnings has improved 1% over the past 60 days.
NRG Energy carries a Zacks Rank #1 and has outperformed the Utility - Electric Powerindustry over the past one-month period (+1.5% vs -0.7%). You can see the complete list of today’s Zacks #1 Rank stocks here.
Lannett Company, Inc. LCI is a publicly traded company that manufactures and distributes high-quality, affordable generic medications. The company’s expected earnings growth rate for the next year is 33.6%, above the industry’s projected rally of 16%. The Zacks Consensus Estimate for current-year earnings has improved 26.3% over the past 60 days.
Lannett Company carries a Zacks Rank #1 and has outperformed the Medical - Drugsindustry over the past one-year period (+194.3% vs -20.6%).
Genesis Healthcare, Inc. GEN is a publicly traded company that provides long-term care, assisted or senior living and rehabilitation therapy. The company’s expected earnings growth rate for the next quarter is 88.1%, in contrast to industry’s decline of 169.8%. The Zacks Consensus Estimate for current-year earnings has improved 93.5% over the past 60 days.
Genesis Healthcare carries a Zacks Rank #1 and has outperformed the Medical - Nursing Homesindustryon a year-to-date period (+16.9% vs +9%).
US Foods Holding Corp. USFD is a publicly traded company that manufactures and distributes high-quality, affordable generic medications. The company’s expected earnings growth rate for the current year is 12.3%. The Zacks Consensus Estimate for current-year earnings has improved 2.7% over the past 60 days.
US Foods flaunt a Zacks Rank #1 and has outperformed the Food - Miscellaneousindustry over the past one-year period (+30.1% vs –1.1%).
Grocery Outlet Holding Corp. GO is a publicly traded company that owns and operates a chain of grocery stores in the United States. The company’s expected earnings growth rate for the next year is 14.1%. The Zacks Consensus Estimate for current-year earnings has improved 1.4% over the past 60 days.
Grocery Outlet carries a Zacks Rank #2 and has outperformed the Consumer Products - Staplesindustry over the past one-year period (+17.2% vs -13.8%).
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NRG Energy, Inc. (NRG) : Free Stock Analysis Report
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