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Wall Street Lacking Trigger to Rebound: Top 5 Safe Picks

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Since the beginning of this year, Wall Street has been reeling under severe volatility, which has intensified in the past one and half months. Year to date, major indexes have corrected significantly and a long list of bellwether stocks are deep in red. Yet, U.S. stock markets are showing no signs of a recovery.

At this stage, it should be fruitful to invest in low-beta high-yielding stocks to safeguard your portfolio. A handful of these stocks are available with a favorable Zacks Rank. Five such stocks are — C.H. Robinson Worldwide Inc. CHRW, Packaging Corporation of America PKG, Ameren Corp. AEE, Watsco Inc. WSO and Vistra Corp. VST.

Market’s Sentiment Turns Bearish

Market participants have started feeling the economic-pain of coronavirus since the beginning of 2022. U.S. stock markets had a fabulous bull run in the pandemic-ridden last two years supported by unprecedented fiscal and monetary stimulus and a near-zero interest rate regime. Once these stimuli were taken off and the Fed took a U-turn from an ultra-dovish to an ultra-hawkish stance, Wall Street started witnessing a rapid meltdown.

The biggest devastating effect of the pandemic is the complete destruction of the global supply-chain system. Excessive dependence of U.S. corporate on China for low-cost inputs has made the situation worst as China is currently under lockdown due to the resurgence of COVID-19. The lingering war between Russia and Ukraine has elevated the prices of several major commodities used as inputs for manufacturing, auto and high-tech sectors.

This supply-chain bottleneck coupled with shortage of manpower pushed up the cost of production and businesses are now shifting this extra burden to the prices of end-products. Yet, corporate America has delivered better-than-expected first-quarter 2022 earnings results buoyed by robust demand in the United States.

The Fed can not do anything to streamline the devastated supply-chain system. However, it can cool the economy by reducing aggregate demand. Therefore, the central bank initiated the rapid hiking of the Fed fund rate and termination of stimulus to squeeze a large amount of liquidity from the system.

Despite these measures, several measures of inflation are showing no sign of any meaningful abatement. Market participants are expecting the Fed to take a more harsher strategy to combat inflation. On May 12, Fed Chair Jerome Powell admitted that he can not give any guarantee for a soft landing of the economy under a higher interest rate regime.

Markets Lacking Trigger to Rebound

A large section of economists and financial experts have already warned of an imminent recession either in 2022 or 2023. These negatives have converted market’s sentiment to extremely bearish.

The Dow, the S&P 500 and the Nasdaq Composite – have tumbled 14.1%, 18.4% and 29.9%, respectively, from their recent highs. By any means, these are significant corrections within 4-6 months. Markets are trying to rebound but have failed since investors are expecting more pain ahead.

As sentiments turn completely bearish, “sale on the rise” is the buzz word and not “buy on the dip”. At this juncture, Wall Street needs a trigger to rebound. However, that silver line is still not visible. The first-quarter 2022 earnings session is at its last leg. Perhaps, good economic data, especially inflation data, will turn the tide.

Our Top Picks

At this stage, investment in low-beta (beta >0 <1) stocks with a high dividend yield and a favorable Zacks Rank may be the best option. If the markets turn northbound, the favorable Zacks Rank of these stocks will capture the upside potential. However, if markets remain bearish, low-beta stocks will minimize portfolio losses and dividend payment will act as a regular income stream.

We have narrowed our search to five low-beta stocks with a solid dividend yield. These companies have strong growth potential for 2022 and have seen positive earnings estimate revisions in the last 30 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks in the past three months.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

C.H. Robinson is benefiting from favorable freight market conditions, such as increased volumes and higher pricing, amid tight capacity. CHRW’s growth-by-acquisition policy is also impressive.

To this end, in May 2021, C.H. Robinson acquired freight forwarding company Combinex Holding B.V. to strengthen its European Surface Transportation business. The acquisition not only broadens its customer base but also improves customer services by clubbing Combinex’s expertise.

Zacks Rank #1 C.H. Robinson has an expected earnings growth rate of 14.1% for the current year. The Zacks Consensus Estimate for current-year earnings improved 12.7% over the last 30 days. CHRW has a current dividend yield of 2.03%.

Packaging Corporation manufactures and sells containerboard and corrugated packaging products in the United States. PKG continues to benefit from robust packaging demand backed by e-commerce and rising requirement for the packaging of food, beverages and medicines.

PKG’s Packaging segment will benefit from higher corrugated products shipments with three additional shipping days. For the Paper segment, the company expects higher prices and mix. Packaging Corporation continues to implement price hikes that will help offset the impact of high operating costs, freight expenses and supply chain issues on margins.

Zacks Rank #1 Packaging Corporation has an expected earnings growth rate of 24.2% for the current year. The Zacks Consensus Estimate for current-year earnings improved 8.2% over the last 30 days. PKG has a current dividend yield of 2.52%.

Watsco is the largest distributor of heating, ventilation and air conditioning equipment, as well as related parts and supplies in the United States, Canada, Mexico, and Puerto Rico. WSO has been witnessing solid demand for HVAC/R products and pricing despite seasonality.

Also, operating efficiencies and strategic acquisitions added to the positives of Watsco. It is to be noted that Watsco is investing heavily to enhance customer experience through e-commerce and deploying technology that improves order fill rates with speed and accuracy. In addition, WSO is focused on enhancing shareholder value.

Zacks Rank #1 Watsco has an expected earnings growth rate of 29.6% for the current year. The Zacks Consensus Estimate for current-year earnings improved 15.2% over the last 30 days. WSO has a current dividend yield of 3.53%.

Vistra operates as an integrated retail electricity and power generation company. VST operates through six segments: Retail, Texas, East, West, Sunset, and Asset Closure. Vistra retails electricity and natural gas to residential, commercial, and industrial customers across 20 states in the United States and the District of Columbia.

Zacks Rank #1 Vistra has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 2.8% over the last 7 days. VST has a current dividend yield of 2.80%.

Ameren has projected solid infrastructure investments of more than $45 billion in the 2022-2031 period. AEE’s growth has been led by its consistent investments and the company expects to spend up to $17.3 billion to support system reliability and infrastructural upgrades in the 2022-2026 period. Ameren has targeted to expand its renewables portfolio by adding 2,400 megawatts of renewable generation by the end of 2030.

Zacks Rank #2 Ameren has an expected earnings growth rate of 6% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.5% over the last 30 days. AEE has a current dividend yield of 2.53%.


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

Ameren Corporation (AEE) : Free Stock Analysis Report

Watsco, Inc. (WSO) : Free Stock Analysis Report

C.H. Robinson Worldwide, Inc. (CHRW) : Free Stock Analysis Report

Packaging Corporation of America (PKG) : Free Stock Analysis Report

Vistra Corp. (VST) : Free Stock Analysis Report

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