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Wall Street Fettered by Three Major Things: 5 Defensive Picks

Nalak Das
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Wall Street Fettered by Three Major Things: 5 Defensive Picks

The situation may worsen in the near future with likelihood of global economic slowdown, inflationary fear leading to another rate hike by the Fed and lingering tariff-related conflicts.

After a tumultuous October, the stock market continues to witness acute volatility in November as well. Barring the first week of November when U.S. stocks rallied on mid-term election results, Wall Street has been reeling under severe volatility denting investors’ confidence.

The situation may worsen in the near future with likelihood of global economic slowdown, inflationary fear leading to another rate hike by the Fed and lingering tariff-related conflicts. In fact, these are the three immediate concerns plaguing the market participants.  Consequently, it would be a prudent decision to pick up defensive stocks with favorable Zacks Rank to cushion the portfolio.

Likelihood of Global Economic Slowdown

On Nov 13, U.S. benchmark West Texas Intermediate (WTI) crude oil future price for December delivery settled at $55.69 a barrel, its lowest since September 2015. This was the 12th straight loss for WTI crude prices, the longest slide since March 1983. Both WTI and international benchmark of Brent are currently at bear market territory.    

Recent plummeting of crude prices has raised eyebrows about an impending global economic slowdown. According to industry researchers, surge in global oil supply and significantly weak global demand for oil is the primary reason behind the plunge. The ICE U.S. Dollar Index, which is currently at it 16-month high, also inflated oil prices resulting in weak demand. Crude oil is priced in the U.S. dollar term in the international markets.   

On Nov 12, shares of Apple Inc. and its various component suppliers tanked as prospects of a global slowdown raised apprehensions regarding the future growth of high-tech products.  Moreover, China’s automobile sales fell 11.7% in October, marking its largest drop since 1990. Notably, China is the biggest car market globally.

Inflation Fears Reignite

On Nov 9, the Department of Labor reported that U.S. producer’s price index for the month of October jumped to 0.6% from 0.2% in September. October reading was also higher than the consensus estimate of a rise of 0.3%. Imposition of tariffs by the U.S. government has increased costs of several important industrial intermediary products.

Surge in producer’s price index has intensified inflationary concerns which might persuade the Fed to tighten its monetary stance in order to rein in inflation. On Nov 8, the central bank hinted at a fourth rate hike this year. Higher interest rate is likely to create panic in stock markets.

Tariff Battle Continues

The U.S. government has warned that if the upcoming meeting between President Donald Trump and his Chinese counterpart Xi Jinping later this month fails to find an amicable solution, then it may impose tariffs worth $267 billion on all remaining Chinese products. The continuation of trade war will result in a potential slowdown in China’s domestic demand for goods from other Asian countries, resulting in global economic slowdown.

On Nov 12, Axios reported that President Trump is mulling over levying heavy tariffs on overseas automakers. The report stated that Trump is of the opinion that a threat of hefty auto tariff is the U.S. administration’s weapon against Canada for bilateral deal. Now, Trump wants to use this weapon against European Union.

Our Top Picks

At this juncture, investment in defensive sectors such as utilities, telecom and consumer staple will be fruitful. We have narrowed down our search on five stocks with a Zacks Rank #1 (Strong Buy) and strong growth potential. You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below depicts price performance of our five picks year to date.

United States Cellular Corp. USM is the eighth largest wireless company in the United States based on the aggregate number of customers in its consolidated markets. The company has expected earnings growth of 179.3% for current year. The Zacks Consensus Estimate for the current year has improved by 45.9% over the last 60 days.

The Chefs' Warehouse Inc. CHEF distributes specialty food products such as artisan charcuterie, specialty cheeses, unique oils and vinegars, truffles, caviar, chocolate and pastry products in the United States and Canada. The company has expected earnings growth of 77.3% for current year. The Zacks Consensus Estimate for the current year has improved by 1.3% over the last 60 days.

Shenandoah Telecommunications Co. SHEN provides regulated and unregulated telecommunications services to customers and other telecom operators in the United States. The company has expected earnings growth of 211.5% for current year. The Zacks Consensus Estimate for the current year has improved by 42.1% over the last 60 days.

Middlesex Water Co. MSEX treats, stores and distributes water for residential, commercial, industrial and fire prevention purposes. The company has expected earnings growth of 42% for current year. The Zacks Consensus Estimate for the current year has improved by 6.5% over the last 60 days.

Comtech Telecommunications Corp. CMTL designs, develops, produces and markets innovative products, systems and services for advanced communications solutions. The company has expected earnings growth of 28% for current year. The Zacks Consensus Estimate for the current year has improved by 26.3% over the last 60 days.

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Middlesex Water Company (MSEX) : Free Stock Analysis Report
 
Comtech Telecommunications Corp. (CMTL) : Free Stock Analysis Report
 
Shenandoah Telecommunications Co (SHEN) : Free Stock Analysis Report
 
The Chefs' Warehouse, Inc. (CHEF) : Free Stock Analysis Report
 
United States Cellular Corporation (USM) : Free Stock Analysis Report
 
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