Buy 5 Defensive Stocks to Combat Market Volatility

The second week of October has turned out to be the worst one for Wall Street since March. All three major stock indexes – The Dow, S&P 500 and Nasdaq Composite – declined 4.2%, 4.1% and 3.7%, respectively. For both the Dow 30 and S&P 500, it was the third straight weekly decrease while Nasdaq Composite posted its second consecutive weekly decline.

However, recent stock market volatility may be transitory in nature, given the strong economic fundamentals of the United States. Whatever may be the fact, investors should be prepared to minimize fluctuations in their portfolio and rebalance it with suitable financial assets to maintain stability. At this stage, it would be a prudent decision to pick up defensive stocks with favorable Zacks Rank to cushion the portfolio.

Soaring Yields on Government Bonds

The yields on 10-year U.S. Treasury Note, 30-year U.S. Treasury Note and 2-year U.S. Treasury Notes, are currently hovering around their seven, four and ten years highs, respectively. Higher interest rate will raise the cost of funds of investing in risky assets like equities. Instead investors may be better off investing money in risk-free government securities. Meanwhile, Jerome Powell, Chairman of the Fed, stated interest rates have a long way to go before hitting neutral, a clear indication of further rate hikes.  

US-China Trade Conflicts Persist

Trade-related conflicts between the United States and China is showing no signs of abating. The U.S. government has already imposed $250 billion of tariffs on Chinese goods while China retaliated with $110 billion tariffs levied on U.S. exports. Notably, President Trump has threatened China with the imposition of another $267 billion of tariffs if situation worsens further.

IMF Lowers Global Growth Projections

On Oct 8, the IMF released its latest edition of global growth projection after its annual meeting in Bali, Indonesia. The agency projected that global growth rate will be 3.7% for both 2018 and 2019, a decline of 0.2% from its earlier projection given in July. Moreover, worldwide total trade volume is estimated to grow by 4.2% in 2018 and 4% in 2019, a stiff decline of 0.6% and 0.5%, respectively, from the agency’s previous projections.

Our Top Picks

Stock markets are likely to remain volatile in near future due to trade concerns, geopolitical conflicts and may be some sector specific issues. At this stage, investment in defensive sectors such as utilities, telecom and consumer staple will be fruitful. We have narrowed down our search on five stocks with either a Zacks Rank #1 (Strong Buy) or 2 (Buy) and strong growth potential.

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

Comtech Telecommunications Corp. CMTL designs, develops, produces and markets innovative products, systems and services for advanced communications solutions. It sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here. 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.

Ameren Corp. AEE enhances the quality of electric and natural gas customers through its rate-regulated utility subsidiaries. It flaunts a Zacks Rank #1. The company has expected earnings growth of 14.8% for current year. The Zacks Consensus Estimate for the current year has improved by 1.2% over the last 60 days.

Ollie's Bargain Outlet Holdings Inc. OLLI offers food products, housewares, books and stationery, bed and bath products, floor coverings, electronics, toys and other products. It carries a Zacks Rank #2. The company has expected earnings growth of 40.8% for current year. The Zacks Consensus Estimate for the current year has improved by 2.9% over the last 60 days.

ONE Gas Inc. OGS operates as a regulated natural gas distribution utility company in the United States. It has a Zacks Rank #2. The company has expected earnings growth of 10.2% for current year. The Zacks Consensus Estimate for the current year has improved by 1.9% over the last 60 days.

NextEra Energy Inc. NEE generates, transmits, distributes, and sells electric power to retail and wholesale customers in North America. It carries a Zacks Rank #2. The company has expected earnings growth of 16.1% for current year. The Zacks Consensus Estimate for the current year has improved by 0.3% over the last 60 days.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.

Click here for the 6 trades >>

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
 
NextEra Energy, Inc. (NEE) : Free Stock Analysis Report
 
Ameren Corporation (AEE) : Free Stock Analysis Report
 
ONE Gas, Inc. (OGS) : Free Stock Analysis Report
 
Ollie's Bargain Outlet Holdings, Inc. (OLLI) : Free Stock Analysis Report
 
Comtech Telecommunications Corp. (CMTL) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research