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Stock Investors: Do You Need a Late Cycle Plan?

Tracey Ryniec
  • (0:30) - Late Cycle Investing
  • (6:45) - Value Stocks To Hide Out In
  • (16:30) - Large Cap Survivor Stocks
  • (21:05) - Episode Roundup: EXAS, EW, BMY, ABC, OXY, XOM
  •                 Podcast@Zacks.com

Welcome to Episode #159 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

Recently a lot of the analysts and portfolio managers have been mentioning in interviews that the economy is in the “late cycle.”

The late cycle usually indicates that growth is slowing, both in earnings and even revenue. It’s harder for companies to make that next big threshold level because they’ve been growing the business throughout the beginning and mid-cycle periods.

Quality of the earnings begins to matter and that usually means investors become more defensive as they seek out companies that will provide some protection in the case of an end cycle, or recession.

In 2019, utilities and REITs, both defensive sectors, have performed well.

But can value investors find some late cycle investments of their own?

Healthcare Can Be Defensive

The healthcare industry can be defensive in a late cycle because you basically have to spend on it no matter what the economic conditions.

1.       Exact Sciences EXAS has been one of the hottest stocks in the sector. Over the last 5 years it’s up 451%. While sales are still growing at double digits and are expected to surpass $1 billion in 2020, the earnings took a dive this year.

2.       Edwards Lifesciences EW is another big healthcare winner, with shares up 318% in the last 5 years. But it’s not cheap with a forward P/E of 41. But won’t people still get their heart surgery even in a recession? Earnings expected to rise double digits this year and next.

3.       Bristol Myers-Squibb BMY is a true value stock by its P/E which is just 11.6. It also pays a dividend, yielding 3.3%. But it’s 5-year return is terrible. It’s down 2.3% during that time versus a gain of 51% for the S&P 500.

What About Energy?

Normally, you wouldn’t want to be in energy stocks late in the cycle because a recession means lower oil and chemical demand. But some of the big energy stocks have already took it on the chin ahead of an economic slowdown.

1.       Occidental Petroleum OXY shares have plunged 43% in the last year and now trade with a forward P/E of 15.6. But it’s the dividend that is luring in investors as it’s currently yielding 7%. However, Occidental is a Zacks Rank #4 (Sell) as its earnings estimates continue to be cut.

2.       Exxon Mobil XOM is expected to see a 38% decline in earnings in 2019 but then analysts forecast a rebound in 2020 of 52%. It also pays a nice dividend, currently yielding 4.8%. Exxon is a dividend aristocrat. It didn’t even cut its dividend during the financial crisis.

What else should investors know about late cycle investing?

Find out on this week’s podcast.

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Bristol-Myers Squibb Company (BMY) : Free Stock Analysis Report
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Exact Sciences Corporation (EXAS) : Free Stock Analysis Report
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
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