Many analysts are confused by the market’s performance. On the one hand, economic growth continues despite more than ten straight years of expansion. On the other, real estate price growth has slowed and the yield curve inverted in August. The Federal Reserve cut rates despite the economic growth numbers.
This likely happened due to widespread concerns about the economy. According to a recent Duke University study, this economic uncertainty has become a top concern among CFOs. More than 53% of CFOs believe a recession will begin by the third quarter of 2020. About 67% think a downturn will occur by the end of next year.
This can leave investors confused about what stocks to buy. No matter what happens with the markets, traders demand equities that keep portfolios in a growth mode. The following stocks can help as investors continue to navigate uncertain waters.
Consumer Discretionary Stocks to Buy: AT&T (T)
At first glance, a communications play such as AT&T (NYSE:T) might not seem like one of the better stocks to buy in uncertain conditions. Equities like AT&T often plunge when the economy turns south. However, AT&T and its peers have begun an upgrade cycle that not even a recession can stop — the move to 5G.
5G offers many things to AT&T. Over the last few years, the company has invested tens of billions into network upgrades. This will power many artificial intelligence, virtual reality and internet of things applications only possible on a limited basis with 4G. Moreover, it ends the price war with T-Mobile (NASDAQ:TMUS) and Verizon (NYSE:VZ) that limited profits in the 3G and 4G worlds.
It also allows T stock to continue the 34 straight years of dividend increases that have long benefitted the equity. Though the stock price has risen in recent months, the yield continues to hover in the 5.5% range. Moreover, since the stock has come to depend on annual payout hikes, I see it as highly likely that investors will receive another dividend increase at the end of the year.
Further, the forward price-to-earnings ratio stands at just 10.2. Although single-digit profit growth will remain, in past years, it traded at a multiple closer to 20. As more consumers adopt 5G, I think it will return to that valuation. And investors will collect a generous payout while they wait.
Dollar General (DG)
Even in better economic times, penny-pinchers and lower-income consumers continue to maintain ultra-discounter Dollar General (NYSE:DG) as one of the more resilient stocks to buy.
Moreover, the company continues to expand aggressively. Dollar General revealed earlier this year that it planned to open 975 stores in 2019. It just announced it is building stores in Washington and Wyoming, meaning it will operate in 46 of the 50 states. The company currently operates over 15,000 stores.
Despite the prosperity of the last five years, Dollar General still increased its profits by over 14% per year over the previous five years. Though that could slow modestly, Wall Street still expects annual growth to remain in the double-digits.
This exceeds growth rates seen in peers such as Dollar Tree (NASDAQ:DLTR) and Big Lots (NYSE:BIG). It also helps makes DG stock a buy even though it has risen by about 60% since the lows of last December.
Despite that move higher, Dollar General trades at a forward P/E of 21.4. Admittedly, growth in the stock could slow. Moreover, some investors may hesitate to buy after the recent run-up. However, despite recent moves, DG stock remains positioned for continued growth regardless of how the economy performs.
Planet Fitness (PLNT)
Planet Fitness (NYSE:PLNT) could keep not only your body but also your portfolio in shape. The company has changed the industry by offering gym memberships for as low as $10 per month, well below the $40-$100 per month most consumers have grown accustomed to paying.
Despite a growing economy, profits at Planet Fitness grew by an average of 35.1% per year over the last five years. Estimates for the next five years come in modestly lower. Still, should the economy fall into recession, it might help the company as more consumers begin to question the $40-plus per month gym membership. Moreover, it offers a low-cost, healthy outlet to deal with both the stress and added free time that a job loss brings.
Admittedly, PLNT stock had looked more expensive earlier in the year. However, the stock has fallen in recent weeks, and now its forward P/E ratio comes in at about 30. This may seem high from an S&P 500 standpoint. However, with earnings growth predicted at 27.9% this year and 24.4% in 2020, the higher valuation appears worth the cost.
Over the summer, PLNT stock has fallen from a high of $81.90 per share to around $57 per share today. It could fall further in the near term. However, once this correction ends, I think Planet Fitness will again become one of the more profitable stocks to buy for any economy.
Spirit Airlines (SAVE)
Spirit Airlines (NYSE:SAVE) — or any other carrier — may seem like strange stocks to buy should the economy turn south. After all, less discretionary cash often means less money for travel. Still, while its ultra-low-fare approach of extra charges for carry-on bags or water may not win happy customers, it brings the paying customers that should please investors.
The airline continues to expand across the country and deeper into South America. It has also contemplated adding a regional jet to better serve smaller markets as well as larger aircraft as it continues its expansion.
Moreover, conditions this year have made it a stock to buy. The stock has slid for most of the year. Rising operating costs and more recently, an active hurricane season, have hampered the equity. SAVE stock has fallen by about 45% from its 52-week high.
However, this has taken its forward P/E ratio to just about seven. Despite this low multiple, analysts expect earnings increases of 7.7% in fiscal 2019 and 9.7% the next year. They also think profit growth will reach double-digit levels in the coming years.
Furthermore, this happened during an economic expansion. If consumers need to fly in tougher times, the ultra-low-fare carrier will become the likely choice. Whatever happens, its rock-bottom P/E ratio and move toward double-digit growth should win investors in just about any economy.
A few years ago, many had written off Target (NYSE:TGT) due to the aggressive push by Amazon (NASDAQ:AMZN) that struck fear among retail investors. However, like its long-time rival Walmart (NYSE:WMT), the company managed to turn itself around with an omni-channel retail strategy.
In a sense, the challenge from Amazon means that Target already had its recession. With its current pivot into omni-channel, growth has returned. Analysts project earnings will increase by 14.3% this year and 7% in fiscal 2020.
This comes in well ahead of Walmart’s growth rate, which stands in the low single-digits. It also offers these earnings increases at a forward multiple of just 15.9. This should also ease some of the worries about the stock since it spiked by more than 20% following the last earnings report. Despite the increase, Target’s forward valuation remains lower than Walmart’s forward P/E ratio of 22.8.
The 51-year streak of annual dividend increases also lowers the risk of TGT stock. At a yield of 2.5%, it exceeds S&P average dividend yields. Also, with a payout ratio of about 49.1%, it will not have any trouble covering the dividend or the payout hikes investors come to expect from dividend aristocrats.
Despite a recent run-up, investors still have good reason to consider TGT one of the more solid stocks to buy. Moreover, with it surviving a challenge worse than a recession in many respects, investors should have few concerns about Target in any economy.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.