U.S. Political Tumult Shrouds Markets: 5 Safe Picks

Wall Street recorded the worst Christmas Eve trading ever, with the S&P 500 entering a bear market. President Trump’s continuous bashing of the Fed and Treasury Secretary Steven Mnuchin’s phone calls to major banks to assess their financial health have been unnerving investors.

Given the widespread concern over the future course of the equity market, investing in stocks guarded from market gyrations won’t be a bad proposition.

We Are Now in a Bear Market

U.S. stocks are currently facing the worst since the financial crisis a decade ago, with major indexes on track to register their worst December performance since the Great Depression. The S&P 500 stumbled 20% from its 52-week high on Dec 24, while the Dow Jones Industrial Average saw its worst decline on the day prior to Christmas in its 122-year old history.

It wasn’t all hunky-dory for the Nasdaq either, with the technology and Internet-laden index marking the worst Christmas Eve. Stocks listed on the exchange plummeted more than 20% from the latest all-time high of Aug 29. Tech bigwigs including Amazon.com, Inc. (NASDAQ:AMZN) and Cisco Systems, Inc. (NASDAQ:CSCO) , to name a few, recorded a daily drop of 3% to 6%, with the Nasdaq failing to sustain any momentum during the holiday-shortened trading day.

Why Stocks Suffer a December Rout

The Trump administration has been quite aggressively attributing the discouraging performance of the U.S. stock market to the latest increase in federal funds rates. The hike in rates, no doubt, increases the cost of lending money from financial institutions for small and medium business houses. This in turn could exert more pressure on the U.S. economy that is on the cusp of a slowdown next year.

Fed may argue that the economy is in good shape but it has failed to consider key factors that may mar prospects in the near term like trade tensions between the United States and China over high tariffs. Such a trade war could easily lead to a domestic recession at a time when the global economy is already demonstrating signs of a slowdown.

Trump criticized Fed chairman Jerome H. Powell for the market slide after the central bank hiked rates last week and gave ample indication of further hikes next year. Also, stoking nervousness was a tweet from Steven Mnuchin to evaluate the heath of the banking system. This raised a lot of doubt about liquidity among financial institutions that had earlier not been raised. Mnuchin contacted chief executives of six major banks to make sure they were operating smoothly and had “ample liquidity available for lending.”

In the United States, investors are keenly watching the partial shutdown of the federal government in the midst of a deadlock between the White House and lawmakers over the President’s intention of securing financing for a wall on the border with Mexico.

The Winning Strategy

As the broader market extends its losses, smart investors should look for stocks that provide superb risk-adjusted returns. The best way to go about doing this is by creating a portfolio of low-beta stocks, which are inherently less volatile than the markets they trade in. In this case, a low beta ranges from 0 to 1.

Even though low-beta stocks pose less risk, they provide lower returns. So, in order to boost your returns, we have zeroed in on stocks that have seen positive earnings estimate revision, usually on a 2-month basis. Rising earnings estimates generally indicate that the stock will outperform the market in the near future. After all, earnings estimates are one of the most powerful metric that measures the fundamental strength of the company. To top it, these stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

5 Solid Bets

Casey’s General Stores, Inc. (NASDAQ:CASY) operates convenience stores under the Casey’s and Casey’s General Store names. The company’s stores offer a selection of food, including freshly prepared foods. The company has a beta of 0.51. The Zacks Consensus Estimate for its current-year earnings increased 5.2% in the last 60 days. The company is expected to return 21.6% next quarter in contrast to the Retail - Convenience Stores industry’s expected decline of 5.6%.

Myriad Genetics, Inc. (NASDAQ:MYGN) is a molecular diagnostic company. The company has a beta of 0.36. The Zacks Consensus Estimate for its current-year earnings increased 5.4% in the last 60 days. The company is expected to return 38.7% next quarter, higher than the Medical - Biomedical and Genetics industry’s projected return of 35.1%.

Spirit Airlines, Inc. (NYSE:SAVE) provides low-fare airline services. The company has a beta of 0.24. The Zacks Consensus Estimate for its current-year earnings increased 18.8% in the last 60 days. The company is expected to return 56.8% next quarter in contrast to the Transportation - Airline industry’s expected decline of 46.9%.

Northrim BanCorp, Inc. (NASDAQ:NRIM) provides commercial banking products and services to businesses and professionals in Alaska. The company has a beta of 0.74. The Zacks Consensus Estimate for its current-year earnings increased 3.5% in the last 60 days. The company is expected to return almost 19% next quarter, higher than the Banks - West industry’s projected return of 3.8%.

Credit Acceptance Corporation (NASDAQ:CACC) provides financing programs and related products and services to independent and franchised automobile dealers in the United States. The company has a beta of 0.52. The Zacks Consensus Estimate for its current-year earnings increased 3.4% in the last 60 days. The company is expected to return 17% next quarter, higher than the Financial - Consumer Loans industry’s estimated return of 1.8%.

In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?

These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>