What a difference a week makes.
Not that we ended 2015 with a bullish bang, but the first four trading days of 2016 have been disastrous, with the S&P 500 posting a 4%-plus loss in the early part of the year.
They’ve even been game-changing in some regards, as the major market indices have fallen under key support levels, and it’s anyone’s guess as to where they’ll finally find a floor.
With that as a backdrop, it’s time to start thinking defensively and go on the hunt for the top stocks to withstand a marketwide pullback. While it’s true that a bearish tide washed most stocks out to sea with it, a few stalwarts often survive and even thrive in a lousy market environment.
In no particular order …
Top Stocks to Buy for Safety: Fresenius Medical Care AG & Co. (ADR) (FMS)
Click to Enlarge Although the headlines suggest no corner of the world has or will escape its share of financial turmoil — China started it, but the U.S. market played along, while Brazil is dragging the rest of South America into the gutter and Europe is talking about stimulus again — there are some pockets of strength in regions that don’t rely on global economic strength to do well.
Germany is one of them, and Germany’s Fresenius Medical Care AG & Co. (FMS) is one the top stocks to buy from that bright spot of the EU’s otherwise lethargic economy.
Fresenius Medical Care is a kidney dialysis company … unfortunately, an industry that’s always in demand. Top- and bottom-line growth has been slow but steady and reliable for years now. It’s not exactly a cheap stock, with a trailing P/E of 24.5 and a forward-looking one just above 20, but sometimes you have to pay for quality.
More important to investors outside of Germany, Fresenius Medical Care is one of the top names in one of the world’s strongest economies at this time.
For perspective, orders for German-made industrial goods were up 1.5% in November, topping expectations. The nation’s unemployment rate also remained as low as it has been since 1990 as of the end of last month. Yet, just this week we learned the country’s inflation pace in December wasn’t as strong as feared.
All of this data (and more) suggests Germany’s economic growth is not only strong, but sustainable. Once things really start to unravel here and elsewhere, demand for quality stocks based in reliable countries should push FMS to the top of many buy lists.
Top Stocks to Buy for Safety: Southern Co (SO)
Yes, stepping into a utility name is a bit cliche. Cliches exist for good reason, though … because they’re often accurate assessments of reality. When things get dicey, traders seek out companies that are assured of future revenue. Utility companies clearly fall into that category; nobody cancels their electricity or water service when money gets tight.
Southern Co is particularly well-positioned for strength right now, not just because it’s viewed as shelter from the storm due to the nature of its business, but because it still has plenty of room to rebound after a sizable setback during the first half of 2015.
The chart tells the tale. SO shares are testing the waters of new multimonth highs, and although a ceiling seems to have developed around $47.50, the bulls haven’t backed down.
One more good nudge (possibly inspired by another market-wide tumble) could do the trick, sending Southern shares upward in a big way.
Top Stocks to Buy for Safety: SPDR Gold Trust (ETF) (GLD)
Click to Enlarge Again, cliche advice can still be helpful advice.
Veteran investors understand that money has no home. It simply moves from one asset category to another, looking for the best/easiest place to appreciate.
While this perpetual migration of money can involve all sorts of assets, it’s most often witnessed between stocks, gold and bonds.
Stocks clearly are under fire at this time, and bonds remain in limbo in the shadow of looming interest rate hikes. That leaves gold as the only justifiable save haven, and the SPDR Gold Trust ETF (GLD) may be the most accessible way for any investor to play the push/pull relationship it has with bonds and stocks.
The accompanying chart plots the relationship between gold, stocks (the S&P 500) and bonds, using the SPDR Lehman Long Term Treasury ETF (TLO) as our proxy for bonds. As would be expected, gold is starting to gain at the stock market’s expense (and while bonds have stagnated).
That said, GLD may be categorized as one of the market’s top stocks — or ETFs, in this case — right now for another reason: After a long lull, U.S. consumers are finally starting to see hints of real inflation again. Gold also is an ideal asset to own during inflationary phases.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.