4 Quality Stocks To Counter Market Volatility

Rising oil prices, a more hawkish Fed, a strengthening dollar coupled with technology companies hitting new lows had a negative impact on the broader markets.

With the markets currently facing a lot of gyration, investing in quality stocks seems prudent. After all, these stocks provide excellent risk-adjusted returns.

U.S. Market Indexes Point Downward

Financial markets have witnessed a downward trend in the past one-and-a-half-months due to Nasdaq Composite’s 10.4% drop since Oct 1. The broader S&P 500 Index and Dow Jones Industrial Average shed 6.7% and 4.7%, respectively in the same timeframe, reflecting certain political and economic factors that impacted the markets negatively.

While the markets have recovered slightly since then, with Nasdaq Composite, S&P 500 and Dow Jones losing 3.1%, 0.51% and 0.02% respectively since Nov 1, the broader picture looks far from optimistic. The fundamental backdrop appears blurred with Fed’s indication of a rate hike in December, United States’ ongoing trade war with China and global political and economic affairs.

Market volatility induced by these factors could be the reason behind investors’ defensive stance of investing in quality stocks.

What is Pushing Financial Markets Down?

Oil prices recovered on Nov 12, largely aided by Saudi Arabia’s energy minister Khalid al-Falih’s announcement that Organization of the Petroleum Exporting Countries (OPEC) and its allies could cut production by 1 million barrels per day (bpd) from October levels to stabilize the recent fall in oil prices.

This oil price recovery thus could hamper consumer spending and in turn affect industries such as retail and consumer discretionary.

America’s strong economic outlook coupled with political and economic conflicts in Europe led to an increase in demand for dollar, thus increasing its value. While a stronger dollar may appear attractive, it does not have a positive impact on American businesses shipping their products overseas. A higher dollar increases the value of American products abroad, raising the possibility of consumers turning to cheaper, domestic brands, thus affecting American business revenues.

Although the Fed refrained from increasing federal funds rates in November, there are ample reasons to expect a rate hike in December, followed by three more hikes next year. America’s healthy job market, under-control inflation, sustainable gross domestic product and surge in consumer spending paint a pretty picture for the economy, raising the probability of interest rate hikes further. While financial institutions are expected to benefit from Fed’s rising rates, it’s not welcoming news for businesses and consumers alike.

In addition, the recent drop in financial markets was due to fall in technology stocks primarily dragged down by Apple (NASDAQ:AAPL) AAPL. Apple’s shares declined 5% after Lumentum LITE, one of Apple’s suppliers, cut its fiscal outlook for the current quarter, following the request of one of its largest customers to slash shipments. Although Lumentum did not mention Apple, it did not take investors long to figure out as the latter generates one-third of Lumentum’s revenues.

Why Invest in Quality Stocks Now

In the current scenario of volatile markets, quality stocks could offer safe haven as they offer stability and have strong balance sheets. In the past 30 days, consumer staples, utilities and health care have outperformed the S&P 500 Index, which fell 3%.

Consumer staples and utilities gained 6.1% and 2%, respectively with health care performing comparatively better than the S&P 500.

Stocks to Buy

We have handpicked some quality stocks from utility and health care sectors that you can consider adding to your portfolio. All the stocks carry a Zacks Rank #1 (Strong Buy) or #2 (Buy) and have outperformed their respective industries this year.

Middlesex Water Company (NASDAQ:MSEX) treats, stores and distributes water for residential, commercial, industrial and fire prevention purposes. The company carries a Zacks Rank #1.

Middlesex Water’s expected earnings growth rate for the current year is 42% compared with the Utility – Water Supply industry’s projected rise of 16.1%. The Zacks Consensus Estimate for the company’s earnings rose 6.5% in the last 60 days.

Amedisys, Inc. (NASDAQ:AMED) is a leading provider of healthcare in the home with a vision of becoming the premiere solution for patients. The company carries a Zacks Rank #1.

Amedisys’ expected earnings growth rate for the current year is 61% compared with the Medical - Outpatient and Home Healthcare industry’s projected rise of 11.1%. The Zacks Consensus Estimate for the company’s earnings rose 5% in the last 60 days.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Myriad Genetics, Inc. (NASDAQ:MYGN) is focused on revolutionizing patient care through the discovery, development and marketing of transformative molecular diagnostic tests that address pressing clinical needs across multiple medical specialties. The company carries a Zacks Rank #1.

Myriad Genetics’ expected earnings growth rate for the current year is 45.8% compared with the Medical - Biomedical and Genetics industry’s projected rise of 9.5%. The Zacks Consensus Estimate for the company’s earnings rose 4.7% in the last 60 days.

The Ensign Group, Inc. (NASDAQ:ENSG) provides a broad range of medical and nursing facilities and services. The company carries a Zacks Rank #2.

Ensign Group’s expected earnings growth rate for the current year is 34% compared with the Medical – Nursing Homes industry’s projected rise of 14.9%. The Zacks Consensus Estimate for the company’s earnings remained unchanged in the last 60 days.

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