After scaling to new highs this year, the equity market is showing some cracks. The exchange of bitter words between U.S. and North Korea has kept many traders on their toes, while brick-and-mortar retailers are facing declining foot traffic, drop in comparable store sales and increased store closures. Also, wider losses for Snap Inc (NYSE:SNAP) and Walt Disney Co’s (NYSE:DIS) plans to pull its movies off Netflix, Inc. (NASDAQ:NFLX) have dented investors’ sentiments.
In fact, historically, August has been a bearish month for most of the major indices. This calls for investing in some rock-solid stocks for steady gains.
Wall Street’s Fear Gauge Springs Back to Life
The bears are back in control. Even though the Wall Street’s “fear-gauge”, the CBOE Volatility Index (VIX), has soared more than 70% since the all-time low hit on Jul 26. In fact, last week it witnessed the highest weekly rise since December 2015. CNNMoney’s Fear & Greed Index also flipped back into the ”fear” territory last week.
Wall Street crawled back into the green on Aug 11, recovering from a sharp decline in the previous session. However, it registered a weekly loss on lingering geopolitical concerns. Last week, the Dow saw its worst week since March, the S&P 500 recorded its steepest one-week drop since November and the tech-heavy Nasdaq posted its worst weekly decline since June.
Trump’s North Korea Nuclear Rhetoric
Last week was plagued by escalating tensions between the U.S. and North Korea. President Trump’s vow to unleash “fire and fury” in response to North Korea’s warning to strike the U.S. territory of Guam, finally indicated that the doom-and-gloom crowd on Wall Street is returning.
Trump has issued an ultimatum to Pyongyang saying that “they be met with fire, fury and frankly power the likes of which this world has never seen before”. His harsh words came in after U.S. intelligence analysts said that North Korea has developed a miniaturized nuclear warhead. Following Trump’s comments, North Korea said that it was “examining the operational plan” to strike sensitive areas like the Anderson Air Force base.
Such talks of “fire and fury” turned investors’ attention to the risk of a nuclear conflict with North Korea, instead of focusing on upbeat corporate earnings in the second quarter.
Consumers Continue to Shun Department Stores
Things aren’t going well in the domestic front either. Retail apocalypse continues at department stores, with Macy’s Inc (NYSE:M), Kohl’s Corporation (NYSE:KSS) and Dillard’s, Inc. (NYSE:DDS) reporting a drop in same-store sales in their latest earnings reports. Shares of such companies tanked as same-store sales indicated the health of the retailers by showing how well store locations performed in the last one year.
Needless to say, the rise of e-commerce players like Amazon.com, Inc. (NASDAQ:AMZN) has also taken a toll on many brick-and-mortar retailers. According to the Forrester’s new Online Retail Forecast, as cited by Digital Commerce 360, online sales in the U.S. are expected to grow 13% year over year in 2017, five times faster than the projected offline sales growth.
Snapchat a Disappointment, Disney to Pull Movies Off Netflix
For the second quarter, SNAP reported loss per share of 36 cents, much wider than the Zacks Consensus Estimate of 29 cents. Revenues of $181.7 million also missed the Zacks Consensus Estimate of $186.9 million. Such a poor show raised doubts that the messaging platform is struggling to grow into a mainstream service and is facing fierce competition from Facebook Inc (NASDAQ:FB) in the process.
Disney is, in the meanwhile, parting ways with Netflix. It will launch its own streaming service and plans to buy stake in BAMTech, a mega streaming and marketing service. Disney’s cable networks like ESPN have fallen in recent years as viewers have changed the way they watch entertainment.
August Traditionally a Bearish Month: 4 Ultra-Safe Stocks to Buy
Thanks to the aforesaid factors, the past few days have been marked with significant turbulence after an unusual long period of quiet on Wall Street. August is also widely believed to be a bearish month for the stock market. The Dow had endured major gyrations this month since the bull market began after the 2008-09 financial crisis, while the S&P 500 gained, on an average, a meager 0.08% over the past 50 years this month.
As stocks may face major turmoil, investors should build a strategy on low-risk assets and a combination of parameters that lead to better 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. These stocks also boast a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Western Asset Mortgage Capital Corp (NYSE:WMC) is a real estate investment trust. The company has a beta of 0.72 and a Zacks Rank #2. The company is currently trading at 7.65x forward 12-month consensus EPS estimate, which compares with a 1-year industry trading range of 8.97x to 9.78x, implying that the stock is quite a bargain and is fundamentally sound. The company’s projected growth rate for the current year is 316.4%, in contrast to the industry’s estimated decline of 4.1%.
Saratoga Investment Corp (NYSE:SAR) is a specialty finance company. The company has a beta of 0.5 and a Zacks Rank #2. Saratoga Investment is currently trading at 9.79x forward 12-month consensus EPS estimate, which compares with a 1-year industry trading range of 9.88x to 11.2x. The company’s projected growth rate for the current year is 26.8%, in contrast to the industry’s projected decline of 7.4%.
Zagg Inc (NASDAQ:ZAGG) designs, produces and distributes professional product solutions for mobile devices. The company has a beta of 0.93 and a Zacks Rank #1. Zagg is currently trading at 10.18x forward 12-month consensus EPS estimate, which compares with a 1-year industry trading range of 16.62x to 19.46x. The company’s projected growth rate for the current year is 175.8%, higher than the industry’s projected growth of 19.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Pilgrim’s Pride Corporation (NASDAQ:PPC) is a retail feed store. It is a producer and seller of chicken with operations mostly in the U.S. The company has a beta of 0.19 and a Zacks Rank #1. Pilgrim’s Pride is currently trading at 11.65x forward 12-month consensus EPS estimate, which compares with a 1-year industry trading range of 13.63x to 17.37x. The company’s projected growth rate for the current year is 38.7%, more than the industry’s projected growth of 22.2%.
5 Trades Could Profit “”Big-League”” from Trump Policies
If the stocks above spark your interest, wait until you look into companies primed to make substantial gains from Washington’s changing course.
Today Zacks reveals 5 tickers that could benefit from new trends like streamlined drug approvals, tariffs, lower taxes, higher interest rates, and spending surges in defense and infrastructure. See these buy recommendations now >>