Is a Recession in the Cards? 4 Safe Bets for Your Portfolio
The big recession 10 years ago was triggered by sub-prime lending in the United States. It was the worst economic slowdown since the Great Depression of 1929. In a span of 80 years, from the beginning of the Great Depression to the end of the financial crisis in 2009, there have been 14 small or big recessions that have hit the U.S. economy. With nearly a decade gone by since the last recession, some analysts expect another recession to be round the corner.
The last recession was a pretty costly one with the U.S. government spending nearly $350 billion to bail out big banks. It also announced a $787 billion economic stimulus package through which the government pumped money directly into the economy. The housing market was most affected with prices crashing more than 30% and unemployment rate in high single digits.
Based on historic patterns and a few economic factors like low unemployment rate and hiking of rates by the Fed, some analysts believe that a recession may hit the market. However, predicting a recession is difficult as it depends on several factors. Although housing prices have moderated in several key areas, job growth in the United States remains decent, giving a mixed picture of the economy.
An article published on the website wtop.com in December last year indicated that yield on short-term bonds was close to that of long-term bonds. This is termed as a flattening yield curve. This indicates that investors are wary of long-term economic growth. However, some suggest that the recent rate hike has caused short-term yields to rise. Continued demand for long-term U.S. bonds (due to lower bond rates in the Europe and Japan) is keeping yields lower.
Views on the equity market are also mixed. Equity markets are growing buoyed by solid earnings but at the same time volatility is rising too. Earnings are expected to increase on the back of the tax cut announced last year instead of rising revenues. This means that the actual growth of the economy will be lesser than portrayed by market performance.
Meanwhile, the International Monetary Fund has predicted that the U.S. economy is heading for a recession as soon as 2020, as published in a blog on express.co.uk. However, it expects a mild recession. Moreover, per a blog published on fortune.com, Bill Gates and famed investor, Warren Buffett also believe that a recession is certain. However, they are unsure about the timeline.
We conclude that the economy is going through a mixed phase. Hence, it is uncertain when it will start slipping into recession. However, the impact of a recession will be hard to deal with.
Historically, it has been seen that Consumer Staples and Pharmaceuticals industries are recession proof as these industries manufacture necessary items. Hence, we believe that investors should pick stocks from these industries to avoid a potential setback to their portfolio during a financial crisis.
Here we present some of the best stocks from these industries. These stocks sport a Zacks Rank #1 (Strong Buy) or #2 (Buy) and hold a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. With our Style Score system, we have identified stocks that have the potential to beat the market.
The score allows one to streamline their search to select winners by eliminating the negative aspects. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. Our research shows that stocks with an impressive VGM Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
Further, these stocks have been witnessing positive interest from analysts lately and belong to industries that rank roughly in the top half, per the Zacks Industry Rank system. This way, we can ensure that our picks are poised to benefit from a bullish outlook for their respective industries.
Our Picks
Guess?, Inc. GES performed well in fiscal 2018, beating earnings estimate in all the four quarters. The company belongs to the Textile – Apparel industry, which ranks in the top 38% among all Zacks industries.
Over the past couple of months, analysts have become increasingly bullish on the stock, with three upward estimate revisions for fiscal 2019 earnings. This led to a sharp spike in the Zacks Consensus Estimate for fiscal 2019, which is pegged at 96 cents, up nearly 14% from 84 cents, 60 days ago. The Zacks Consensus Estimate for fiscal 2020 increased a penny from $1.22 to $1.23 over the last 30 days. The stock has gained 23.9% so far this year. The company holds a Zacks Rank #1 and has a VGM Score of A. (Read more: Guess? Looking Strong Going into 2018: Here's Why)
US Foods Holding Corp. USFD caters to foodservice distribution industry with a national footprint. The company belongs to the Miscellaneous Food industry, which ranks in the top 42% among all Zacks industries.
The stock has been witnessing solid activity on the estimate revision front. The Zacks Consensus Estimate for 2018 earnings has trended up sharply over the past couple of months, from $1.78 to $2.05 per share. The Zacks Consensus Estimate for 2019 increased from $2.01 to $2.44 over the same period. The stock has gained 3.2% so far this year. The company sports a Zacks Rank #1 and has a VGM Score of B.
Pfizer Inc. PFE boasts a strong pipeline and expects approximately 25 to 30 drug approvals over the next five years among which 15 products have blockbuster potential. The company belongs to the Large Cap Pharmaceuticals industry, which ranks in the top 47% among all Zacks industries.
Analysts have great expectations from the company this year and have been revising 2018 earnings estimates upward over the past 60 days. Pfizer has seen eight positive revisions over the past 60 days, resulting in its 2018 estimate climbing from $2.77 to $2.96. The Zacks Consensus Estimate for 2019 increased from $2.89 to $3.05 over the same period. The company holds a Zacks Rank #2 and has a VGM Score of B.
Horizon Pharma Public Limited Company HZNP nephrology drug, Krystexxa, recorded impressive growth in 2017, which is expected to continue this year. The company belongs to the Biomedical and Genetics industry, which ranks in the top 28% among all Zacks industries.
Moreover, analysts have become increasingly bullish on the company over the past couple of months, with four upward estimate revisions for its 2018 earnings. This led to a spike in the Zacks Consensus Estimate for 2018, which is pegged at $1.43, up from $1.30, 60 days ago. The Zacks Consensus Estimate for 2019 increased from $1.54 to $1.77 over the same period. The stock has gained 4.2% in the past six months. The company has a Zacks Rank #2 and a VGM Score of B. (Read more: Is Horizon Pharma Public a Great Stock for Value Investors Right Now?).
Investor Alert: Breakthroughs Pending
A medical advance is now at the flashpoint between theory and realization. Billions of dollars in research have poured into it. Companies are already generating substantial revenue, and even more wondrous products are in the pipeline.
Cures for a variety of deadly diseases are in sight, and so are big potential profits for early investors. Zacks names 5 stocks to buy now.
Click here to see them >>
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
Pfizer Inc. (PFE) : Free Stock Analysis Report
US Foods Holding Corp. (USFD) : Free Stock Analysis Report
Horizon Pharma Public Limited Company (HZNP) : Free Stock Analysis Report
Guess?, Inc. (GES) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
