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Sidestep Near-Term Market Volatility: 5 Defensive Picks

Nalak Das

After a tumultuous 2018, the stock market has received some respite in the first week of 2019. However, considering the last two trading days, volatility seems to have made a comeback in Wall Street denting investors’ confidence to some extent.

Concerns about economic slowdown in China, Brexit related problems and expectations from fourth quarter 2018 earnings results are near-term factors that can generate market fluctuations. At this stage, it would be a prudent decision to pick up defensive stocks with favorable Zacks Rank to cushion your portfolio.

Fear of Chinese Economic Slowdown

China witnessed a slowdown in trade growth in 2018 primarily owing to lingering tariff related conflict with the United States. Chinese customs data revealed that the country’s export grew 7.1% in 2018 compared with 7.9% in the prior year. Similarly, import declined to 12.9% in 2018 compared with 15.9% in 2017 owing to weak domestic demand.

Recently, the China Association of Automobile Manufacturers reported that deliveries of passenger vehicles to dealers dropped 4.1% to 23.7 million units, its first decline in 28 years. Moreover, the China Passenger Car Association reported a slump of 6% in retail vehicle sales in 2018.

The trade war between two largest trading nations of the world which commenced on March 2018 is currently going through a 90-day truce period. However no concrete solutions have emerged so far. Several market experts have warned that precipitous worsening of Chinese economic data will lead to a global economic slowdown.

Brexit Problems Heighten

The U.K. parliament is set to vote for Prime Minister Theresa May’s Brexit deal on Jan 15. The U.K. is set to leave the European Union (EU) on Mar 29, 2019. Notably, in 2016, 52% of UK voters backed leaving the EU in a referendum.

May’s Brexit deal has been facing widespread opposition as it designed to prevent the reintroduction of physical border controls between Northern Ireland and Republic of Ireland. Notably, Northern Ireland is part of the U.K. while Republic of Ireland is part of EU.

If the Brexit deal gets defeated in voting, the government would only have three parliamentary working days to come up with revised plans. U.K. opposition leader Jeremy Corbyn has already warned that his Labor Party would push for a general election if Parliament rejects May’s deal through a vote of no-confidence.

Has U.S. Corporate Earnings Already Peaked?

Despite record-breaking earnings reports for the first three quarter of 2018, some weak signs have also emerged which prompted some analysts to predict that corporate America has reached peak earnings momentum. Estimates for the fourth-quarter 2018 have come down to 10.5% on Jan 11, 2019 from 12.9% on Nov 28, 2018. (Read More: Can Earnings Reports Push Bank Stocks Higher?)

Several bellwether companies have provided weak earnings and revenues guidance for the fourth quarter primarily due to adverse movement of foreign exchange rate (a strong U.S. dollar), cost push inflation (high input prices due to imposition of tariffs) and an impending global economic slowdown.

Our Top Picks

At this juncture, investing 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 in he last three months.

Blue Apron Holdings Inc. APRN provides recipes and fresh ingredients for making home cooking accessible. The company has expected earnings growth of 44.5% for current year. The Zacks Consensus Estimate for the current year has improved by 11.8% over the last 30 days.

Newell Brands Inc. NWL designs, manufactures, sources, and distributes consumer and commercial products worldwide. The company has expected earnings growth of 36.8% for current year. The Zacks Consensus Estimate for the current year has improved by 0.6% over the last 30 days.

WD-40 Company WDFC develops and sells maintenance products and homecare & cleaning products in the Americas, Europe, Middle East, Africa, and Asia-Pacific. The company has expected earnings growth of 10.4% for current year. The Zacks Consensus Estimate for the current year has improved by 0.7% over the last 30 days.

Altice USA Inc. ATUS is a broadband communications and video services providers primarily in the United States. The company has expected earnings growth of 6,400% for current year. The Zacks Consensus Estimate for the current year has improved by 4.9% over the last 30 days.

Cogent Communications Holdings Inc. CCOI specializes in providing businesses with high speed Internet access, Ethernet transport, and colocation services. The company has expected earnings growth of 43.8% for current year. The Zacks Consensus Estimate for the current year has improved by 1.1% over the last 30 days.

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