U.S. stocks got hammered in August, with the brunt of the pain coming over just a six-day trading period. The Dow Jones Industrial Average lost nearly 2,000 points over those six days, and in the blink of an eye, investors were staring down 10% losses.
Looking for a cause, Wall Street pointed to China, whose slowing growth and a surprise move to devalue its currency sparked fears that Asia’s economy could fall off a cliff.
The brunt of the fall came between Aug. 18 and Aug. 25, when the S&P 500 index plunged 11.2%. But despite this severe selloff, a handful of stocks were able to weather the pullback elegantly.
These 10 best-in-class stocks expertly weathered the systemic pullback, however, posting market-beating performances — or actually managing to squeak out some gains amid the chaos.
Best Stocks Defying the Selloff #10: Coca-Cola (KO)
Market capitalization: $170 billion
Performance (8/18-8/25): -8.1%
Performance vs. S&P (-11.2%): +2.1 percentage points
While Coca-Cola (KO) stock hasn’t exactly been crushing the stock market in recent years, it sure knows how to weather a downturn.
It makes sense that KO stock would see less selling than the market during times of extreme uncertainty and pessimism. Not only is it one of the most recognizable consumer brands in the world, but it’s globally diversified.
Plus, Coca-Cola has been consciously diversifying away from its core soda business, with brands like Dasani water, Minute Maid and Honest Tea beneath its umbrella.
Most important for weathering the downturn, though, was Coca-Cola’s sturdy and reliable dividend: KO’s dividend yield sits at 3.4%, and boasts 53 consecutive years of dividend growth.
Best Stocks Defying the Selloff #9: Dominion Resources (D)
Market capitalization: $42 billion
Performance (8/18-8/25): -7.9%
Performance vs. S&P: +2.3 percentage points
Ah, utilities: The tried-and-true investor safe-haven. If you don’t want to plop your cash in fixed income, utilities stocks like Dominion Resources (D) are some of the safer investments on Wall Street.
Dominion Resources is an electric utility; demand for its services is reliable, its cash flows are fairly predictable, and the industry is regulated. There’s no way this stock could go to zero merely because China’s stock markets are out of control.
It also didn’t hurt that Dominion dishes out a 3.7% dividend at a time when investors were fleeing high-risk stocks.
Best Stocks Defying the Selloff #8: Chipotle (CMG)
Market capitalization: $22 billion
Performance (8/18-8/25): -7.7%
Performance vs. S&P: +2.5 percentage points
You wouldn’t think that a high-flying fast-casual chain like Chipotle (CMG) would be seen as a safety haven by Wall Street.
Usually, you’d be right. But CMG stock was able to lose less than 8% (to the S&P’s 11.1%) largely because of an analyst upgrade on Aug. 24.
Wedbush Securities raised its price target on the stock from $620 to $740, also raising its full-year earnings per share estimate for the burrito chain. Nick Setyan of Wedbush boosted his FY15 EPS from $17.34 to $17.42 and his FY16 EPS from $20.04 to $20.67.
Chipotle’s same-store sales are still growing faster than the industry at large, which allows the company to justify continue expansion.
Best Stocks Defying the Selloff #7: AT&T (T)
Market capitalization: $200 billion
Performance (8/18-8/25): -7.1%
Performance vs. S&P: +4.1 percentage points
Utility stocks like Dominion and iconic blue-chip stocks like Coca-Cola aren’t the only names that tend to outperform the broader indices when stocks experience a sharp correction. Telecoms do well, too, and AT&T (T) was no exception.
Telecom stocks tend to have a natural buffer against downturns for some of the same reasons we see with utilities: A steady demand makes for a generally predictable business. Telecoms, like utilities, tend to be cash cows and dividend stocks with hefty yields.
AT&T’s dividend yield is certainly hefty: It currently sits at 5.7%, and the company has a 31-year record of raising its payout.
Dividends like that start to look pretty attractive on days like Aug. 24, when the Dow lost more than 1,000 points in a matter of hours.
Best Stocks Defying the Selloff #6: Dollar Tree (DLTR)
Market capitalization: $18 billion
Performance (8/18-8/25): -6.8%
Performance vs. S&P: +4.4 percentage points
Discount retailer Dollar Tree (DLTR), despite boasting no dividend, was able to outperform the S&P by a wide margin, 4.3 percentage points, in the six-day trading period between Aug. 18 and Aug. 25.
Because of Dollar Tree’s business — it’s now the largest deep discount retailer in the U.S. after its acquisition of Family Dollar (FDO) — Dollar Tree is naturally insulated from hard economic times. As consumers cut back on expenses, they take to buying cheaper products … something Dollar Tree has in spades.
With investors fearing the worst, it’s no surprise Dollar Tree stock outperformed as markets plunged.
Its performance after earnings was another story.
Best Stocks Defying the Selloff #5: Sucampo Pharmaceuticals (SCMP)
Market capitalization: $1.2 billion
Performance (8/18-8/25): -5.8%
Performance vs. S&P: +5.4 percentage points
In August, I highlighted Sucampo Pharmaceuticals (SCMP) as one of seven high-growth healthcare stocks demolishing the market this year. I scarcely would’ve thought that a few weeks later, I’d be highlighting SCMP again — as a stock that held its ground during a correction.
This one’s a bit of a head-scratcher, but it goes to show that a small percentage of momentum stocks have such strong sentiment behind them that even a market-wide downturn can’t really hurt them.
At a market cap of just $1.2 billion, not only is SCMP profitable, but it’s not yet widely known. There could be more opportunity ahead here; cobiprostone, a drug for oral mucositis, is in Sucampo’s pipeline and was recently given fast-track status by the FDA in May.
Best Stocks Defying the Selloff #4: Sysco (SYY)
Market capitalization: $34 billion
Performance (8/18-8/25): -5.1%
Performance vs. S&P: +6.1 percentage points
Shares of food distribution giant Sysco (SYY) got through the downturn without getting too badly scuffed — but that had nothing to do with the perceived safety of the food distribution industry or anything like that.
While Sysco’s 3% dividend yield helped bolster its resilience, the real reason it crushed the S&P was Nelson Peltz, a famed activist investor. Peltz is best-known for running the hedge fund Trian Fund Management, which he uses to buy large stakes in companies before pushing them to make major changes ultimately aimed at increasing the stock price.
In mid-August, Trian announced a 7% activist stake in SYY stock. Within weeks, Peltz and another Trian partner, Josh Frank, were added to the company’s 12-man board. Investors are clearly anticipating Peltz will shake up the business and drive shares higher.
Best Stocks Defying the Selloff #3: Precision Castparts (PCP)
Market capitalization: $31 billion
Performance (8/18-8/25): -1%
Performance vs. S&P: +10.2 percentage points
Precision Castparts (PCP) stock was remarkably stable during the market meltdown. The reason? Warren Buffett’s Berkshire Hathaway (BRK.B) had already agreed to buy the company for a fixed price, and shares weren’t going to budge much from that level.
On Aug. 10, Berkshire announced an agreement to buy Precision Castparts, an industrial part-maker mainly serving the aerospace and energy industries. The $37.2 billion deal, valued PCP stock at $235 per share, a 21% premium from the prior day’s closing price.
So even though PCP shares barely wiggled in the downturn, there was negligible upside to be had in owning the stock anyways, as shares were trading just a few dollars below $235, reflecting the minimal risk that the deal won’t go through.
Best Stocks Defying the Selloff #2: Sprint (S)
Market capitalization: $20 billion
Performance (8/18-8/25): Flat
Performance vs. S&P: +11.2%
Just before Wall Street decided to panic, Sprint (S) decided to make a savvy move to retain and attract customers. On Aug. 17, Sprint announced its “iPhone Forever” program, which allows new and upgrade-eligible Sprint customers to upgrade to the latest Apple (AAPL) iPhone model each time a new one comes out.
All they have to do is trade in their old one. (And start a new $15 to $22/mo. lease agreement on the new iPhone).
Investors seemed to like the promotion, which comes at a time of fierce competition between wireless carriers. We’ll have to wait and see if this is a long-term boost for S stock, but it relies heavily on the continued popularity of the iPhone — and the promotional activities of its competitors.
Best Stocks Defying the Selloff #1: Best Buy (BBY)
Market capitalization: $12.6 billion
Performance (8/18-8/25): +1.8%
Performance vs. S&P: +13 percentage points
The biggest outperformer, and the only stock to actually rise on this list, was Best Buy (BBY), which saw shares gain nearly 2% as the rest of the market was going up in flames. Sometimes there’s just nothing better than a great earnings report.
And the consumer electronics retailer certainly had a blowout second quarter, with EPS of 49 cents cruising past the consensus 34-cent estimate. Revenue also came in above expectations, clocking in at $8.53 billion, well above analysts’ $8.29 billion estimate.
Investors may have also been cheering the fact that Best Buy’s revenue, excluding its since discontinued China operations, still came in at $8.46 billion. It definitely looks like reducing exposure to China was the right move, and BBY finally got some recognition for that in August.
As of this writing, John Divine was long AAPL stock. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.