The first half of the year 2019 may have been great for Wall Street, but volatility is looming none the less. First, a permanent solution to the ongoing U.S.-China trade crisis is not in sight right now. Then, global growth worries are there to unsettle the market’s momentum. Finally, geopolitical tensions in the Middle East are lurking to rattle investors’ mood occasionally.
Shoving such concerns aside, the S&P 500 posted the best first half in 22 years, logging 17.3% gains. No wonder, U.S. stocks are pricey. So, one has to hone in on value, dividends and quality in order to rule in the second half. However, on the positive side, we have the resumption of U.S.-China trade talks and the extension of the OPEC output cut deal. A dovish Fed as well as accommodative ECB and the Bank of Japan could also propel a rally.
Against this backdrop, below we highlight a few stock strategies that are likely to win in the second half.
Bet Big on Quality Stocks
Quality ETFs are relatively safe and can help investors fight the looming economic slowdown. To find out the top players in this space, we have picked stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy), return on equity (ROE) of at least 10%, debt-to-equity ratio of less than 1, positive five-year historical EPS growth, double-digit, current-year EPS growth and P/E less than 18. Based on the above-mentioned criteria, one can rely on Shoe Carnival Inc. SCVL, Herman Miller Inc. MLHR, SYNNEX Corporation SNX and Cisco Systems Inc. CSCO.
Delve Into Dividend Yields
Dividends or regular current income could save investors even if there is any capital loss. So, one can bank on these high momentum dividend-oriented stocks. For that, one can bet on Southern Company SO (yields 4.50% annually), BHP Billiton Limited BHP (yields 4.14%), Kimberly-Clark Corporation KMB (yields 5.15%) and Campbell Soup Company CPB (yields 5%). These top-ranked stocks added at least 3% in the past 12 weeks.
Dividend Growth Stocks: Another Winning Proposition
Dividend aristocrats are the dividend-paying companies, which have a long history of raising dividend payments year over year. These provide hedge against economic uncertainty and are high quality in nature. In this regard, investors may choose to place their bets on stocks that have a solid dividend growth history.
Vulcan Materials Company VMC (last 5-year dividend growth rate of 45.69%), Tyson Foods Inc. TSN (growth rate is 45.16%), Children's Place Inc. PLCE (growth rate of 41.91%) and CoreSite Realty Corporation COR (growth rate 31.59%) could hit your Wishlist. All these stocks have a top Zacks Rank.
Most Sectors to Reel in Q2 Earnings Season: Bet on Exceptions
Second-quarter earnings season is going to start in two weeks and the S&P 500 earnings is expecting a 3% year-over-year decline on 4.3% gains in revenues. Among the struggling sectors, a few show promises.
Consumer Discretionary sector is expected to post 0.9% gains in earnings on a 12.8% revenue jump. Also, the second half of the year is loaded with celebrations like Thanksgiving and Christmas, which give discretionary stocks a boost. Guess Inc. GES, Weight Watchers International Inc WW, Rent-A-Center Inc. RCII and Crocs Inc. CROX — are the picks here.
Business Services sector is expected to log 2.9% earnings growth on 2.8% revenue expansion. Tessera Holding Corporation XPER is a good top-ranked pick here.
Trade War or Not: Play Large-Cap Stocks
Small caps are reeling under pressure. Despite renewed tariff tensions in the second quarter, the benchmark Russell 2000 index of small companies underperformed the S&P 500, the Dow Jones and the Nasdaq.
The Russell 2000 is up about 17% year to date, still more than 8% below the record highs it reached in August 2018. On the other hand, the large-cap S&P 500 is hovering around record highs. Margin pressure is weighing on the small-cap segment. Barclay’s now estimates that small-caps will post EBITDA growth of 2% this year, down from its estimate of 5.5% growth earlier this year.
Against this backdrop, investors can tap large-cap stocks like United Continental Holdings, Inc. UAL, D.R. Horton, Inc. DHI and Cummins Inc. CMI. These stocks are top ranked and also boast lower P/E than the S&P 500.
Looking to Low-Priced Stocks? Here are Your Top Options
As investors poured in a lot of money to make the most of the first-half rally, they may have run out of cash. Obviously, many must be on the lookout for stocks that are still trading below $20 but have reasons to outperform in the days ahead.
Here are your picks: JetBlue Airways JBLU (last traded price $18.79), Myers Industries Inc. MYE (last traded price $19.00), and Builders FirstSource Inc. BLDR (last traded price $16.98).
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>
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
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
Southern Company (The) (SO) : Free Stock Analysis Report
Cisco Systems, Inc. (CSCO) : Free Stock Analysis Report
Kimberly-Clark Corporation (KMB) : Free Stock Analysis Report
Tessera Holding Corporation (XPER) : Free Stock Analysis Report
Builders FirstSource, Inc. (BLDR) : Free Stock Analysis Report
Vulcan Materials Company (VMC) : Free Stock Analysis Report
D.R. Horton, Inc. (DHI) : Free Stock Analysis Report
SYNNEX Corporation (SNX) : Free Stock Analysis Report
Cummins Inc. (CMI) : Free Stock Analysis Report
Rent-A-Center, Inc. (RCII) : Free Stock Analysis Report
Tyson Foods, Inc. (TSN) : Free Stock Analysis Report
Campbell Soup Company (CPB) : Free Stock Analysis Report
BHP Billiton Limited (BHP) : Free Stock Analysis Report
Shoe Carnival, Inc. (SCVL) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research