The U.S. stock market rallied hard during the last half of Q1. Short squeezes in mid-February, coupled with companies buying back their own shares at a fantastic rate, triggered a buying spree that sent the S&P 500 up more than 10%.
Unfortunately for many stocks in the market, it appears most of the shorts have already been squeezed — which means short sellers aren’t going to be forced to buy back stocks — and most of the companies in the S&P 500 are entering their blackout period before they announce quarterly earnings results for Q1 2016.
Blackout periods are self-imposed time frames — typically lasting a month or so in the lead up to the quarterly earnings announcement — during which companies and key personnel within companies who have access to insider information refrain from buying or selling the company’s stock to prevent anyone from violating SEC rules by trading on insider information.
Without the buying pressure from squeezed short sellers and corporate buyback programs, the stock market is likely to lose ground heading into Q2. To combat this, it’s time to play a little defense in your portfolio. We’re certainly doing so in our SlingShot Trader portfolio, and today we’re sharing five such stocks that are looking particularly compelling.
Duke Energy Corp (DUK)
When it comes to playing defense in the stock market, there’s no better place to turn than the Utilities sector. Utilities stocks, like Duke Energy Corp (DUK), always seem to outperform when the market starts to turn lower because, no matter what else is going on in the market or the economy, people are still going to need to power their homes, apartments and businesses.
Plus, DUK and other utilities tend to pay a strong, consistent dividend. DUK’s current dividend yield is 4.1%. When you compare that to the paltry 1.9% investors can presently get by buying 10-year U.S. Treasuries, you can see why investors are drawn to DUK. When it’s time to play defense in SlingShot Trader, we tend to gravitate to solid dividend stocks for this very reason.
DUK has had a solid 2016 so far, and it is poised to continue moving higher heading into Q2. You can see how the stock shot higher in early-February when the S&P 500 was dropping to fresh lows. This is a perfect example of the inverse correlation DUK tends to have with the market when the general sentiment on Wall Street turns bearish. We expect more of the same as the market drops once again.
Facebook Inc (FB)
Ever since the S&P 500 started drifting lower after hitting its all-time high in May 2015, traders have been looking for large-cap stocks with solid balance sheets that could still be considered “growth” stocks. As you can imagine, that kind of a stock is hard to find, which is exactly why so many traders have been flocking to Facebook Inc (FB).
For our part, we had a money-doubler in Facebook a few months ago at SlingShot Trader, and we think you’ll find it’s easy to see why it’s been so successful.
FB is making money hand over fist, and the company is still finding ways to expand its user base while increasing its mobile advertising revenue. This has been the key to FB’s recent success. Other social media companies — like Twitter Inc (TWTR) and LinkedIn Corp (LNKD) — haven’t been able to tap into the shift consumers are making away from their laptops and desktops and onto their smartphones, but FB has.
After its last earnings announcement in late January, FB shot higher, only to come dropping right back down again. However, since that decline, the stock has been steadily climbing, and we anticipate it is going to continue doing so until it reaches the high it established just north of $117.50.
UnitedHealth Group (UNH)
UnitedHealth Group Inc (UNH) is the largest health insurer in the United States, and it is using its size to climb to new highs.
UNH’s customer base gives it an incredible amount of bargaining power when it comes to prescription drug costs. The company’s OptumRx unit is one of the country’s largest pharmacy-benefit managers, and it is taking advantage of the political headwinds pharmaceutical companies are facing during this election year by continuing to negotiate lower rates for its customers.
UNH is also cutting costs by continuing to invest in its urgent-care business. The more it can get patients to visit urgent-care centers instead of more expensive emergency rooms, the less it has to spend, and the wider its margins become.
We expect UNH to continue climbing up toward $136.
Visa Inc (V)
Visa Inc (V) is the dominant player in the credit/debit card market, and the more people continue to move toward a cashless economy, the more defensive V becomes against market downturns.
The writing has been on the wall for quite some time. Consumers are doing more and more of their shopping online, which means they have to use their credit/debit cards more frequently. Even when they are shopping in a brick-and-mortar location, they are reaching for plastic more than they are reaching for cash. With this in mind, we’ve traded Visa and MasterCard Inc (MA) several times in SlingShot Trader, and it’s certainly a theme to watch.
Every time a customer swipes her card or types in her card number online, V takes a cut, and it doesn’t look like the swiping is going to slow down anytime soon.
V is on the verge of completing an inverted head-and-shoulders bullish reversal pattern. If the stock can break up through the down-trending neckline of the pattern, it could be well on its way to climbing back up to its recent highs around $81.
Altria Group Inc (MO)
Just as Utilities stocks are defensive because the vast majority of people will pay their utility bills come hell or high water, cigarette companies, like Altria Group Inc (MO), are also defensive because smokers will make getting their cigarettes a priority in their spending.
MO, just like other cigarette companies, also pays a strong dividend because it is a cash cow. It brings in a ton of revenue and doesn’t have to spend a lot on capital expenditures or other investments. MO’s current dividend yield is 3.7%, and (as we mentioned) at SlingShot Trader we believe this is a key theme in a troubled market.
MO has bursts of price movement every once in a while, but typically it tends to move higher in a consistent, steady trend. The stock recently dropped back a bit after establishing a new high at ~$63, bringing it down to the lower range of its upward-trending channel. This puts the stock in an excellent position to see another support bounce higher – challenging its recent highs.
InvestorPlace advisors John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next trade and get 1 free month today by clicking here.
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