U.S. Markets closed

Market Rally Halts on Global Growth Concern: 5 Defensive Picks

Nalak Das

Wall Street rally came to an abrupt halt on Feb 21 as several economic reports raised concerns regarding global economic slowdown. Notably, these reports came from the United States, Eurozone and Japan, and were majorly concerned with the manufacturing sector. Additionally, the U.K. is also facing Brexit related problems which is likely to hinder the country’s growth in 2019.

Despite progress in the trade related conflict between the United States and China, the issue is yet to be resolved. On Feb 21, The Dow and S&P 500 ended their three day bull-run and entered into the red. Meanwhile, Nasdaq Composite ended its eight-day winning streak and forayed into the negative territory. At this juncture, it would be prudent to pick up defensive stocks with favorable Zacks Rank to cushion your portfolio.

Tepid US Economic Data

On Feb 21, the Philadelphia Fed Manufacturing index (measuring manufacturing activities of Pennsylvania, Delaware and New Jersey) for February significantly declined to reading of -4.1 from a massive 17 in January. This was the first negative reading since May 2016.

On Feb 15, the U.S. government reported that industrial production declined 0.6% in January while the consensus estimate was for growth of 0.1%. Within the industrial sector, the manufacturing output declined 0.9%. Capacity utilization (measuring the amount of a plant that is in use) decreased to 78.2% from 78.8% in December.

On Feb 21, the National Association of Realtors reported that existing home sales declined 1.2% in January to a seasonally adjusted 4.94 million lagging the consensus estimate of 5.04 million. This was the third straight monthly decline of existing home sales hitting the lowest level in three years.

Eurozone’s Growth at Risk

On Feb 21, Data firm IHS Markit reported that Eurozone’s Manufacturing Purchasing Managers Index declined to a reading of 49.2 in February, its lowest reading in 69-months. Any reading below 50 indicates contraction of manufacturing activities.

Sharp decline in Eurozone manufacturing PMI was on account of significant fall in Germany’s manufacturing sector. The German manufacturing PMI declined to 47.6 in February from 49.7 in January, marking two consecutive months of manufacturing contraction.

On Feb 6, the European Commission lowered 2019 growth projection for the 19-member Eurozone from 1.9% in November to 1.3%. The growth rate for 2020 was pegged at 1.6%.

Japan’s Manufacturing Declining

On Feb 21, Bloomberg reported that the Flash Markit/Nikkei Japan Manufacturing Purchasing Managers Index (PMI) fell to a seasonally adjusted 48.5 in February from 50.3 in January, its lowest reading since June 2016. The sub-index for production fell to 47.0 in February from 49.4 in January. This indicates actual manufacturing output decline was much larger.

On Feb 20, Japan stated that its trade deficit for the month of January increased a whopping 49.2% year over year to 1.41 trillion yen (around $12.8 billion). The stiff increase in trade deficit was owing to a decline of 17.4% of exports to China, its largest decline since January 2016. This was the second consecutive month of export decline.

Bank of England Reduces UK Outlook

On Feb 4, Bank of England reduced the growth rate of the U.K. for 2019 to 1.2% from 1.7% forecasted earlier. Economic forecast for 2020 has been reduced to 1.5%. The root cause of an impending slowdown is the Brexit related problem.

Our Picks

At this juncture, investing in defensive sectors such as utilities, telecom and consumer staple will be fruitful. Defensive stocks are generally immune to vagaries of the economic cycle. It's because these companies provide basic services like electricity, telecom, gas and water, which can never go out of demand.

We have narrowed down our search to five stocks with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The chart below shows price performance of our five picks in the last six months.

Celsius Holdings Inc. CELH develops, markets, sells, and distributes functional calorie-burning fitness beverages in the United States and internationally. The company has expected earnings growth of 67.3% for current year. The Zacks Consensus Estimate for the current year has improved by 20% over the last 60 days.

Monster Beverage Corp. MNST develops, markets, sells, and distributes energy drink beverages, soda, and its concentrates in the United States and internationally. The company has expected earnings growth of 12.7% for current year. The Zacks Consensus Estimate for the current year has improved by 1.5% over the last 60 days.

Northwest Natural Holding Co. NWN builds and maintains natural gas distribution systems in the United States. The company has expected earnings growth of 11% for current year. The Zacks Consensus Estimate for the current year has improved by 0.4% over the last 60 days.

NRG Energy Inc. NRG operates as an integrated power company in the United States. The company has expected earnings growth of 64.2% for current year. The Zacks Consensus Estimate for the current year has improved by 8.1% over the last 60 days.

Harris Corp. HRS provides technology-based solutions that solve government and commercial customers' mission-critical challenges in the United States and internationally. The company has expected earnings growth of 22.8% for current year. The Zacks Consensus Estimate for the current year has improved by 1.5% over the last 60 days.

Wall Street’s Next Amazon

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.

Click for details >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
NRG Energy, Inc. (NRG) : Free Stock Analysis Report
 
Northwest Natural Gas Company (NWN) : Free Stock Analysis Report
 
Harris Corporation (HRS) : Free Stock Analysis Report
 
Monster Beverage Corporation (MNST) : Free Stock Analysis Report
 
Celsius Holdings Inc. (CELH) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research