Market forecasts are growing increasingly pessimistic. U.S. investment bank Morgan Stanley (NYSE:MS) warned earlier in July that the stock market is headed for a correction in the current third quarter. Mike Wilson, the chief U.S. equity strategist at Morgan Stanley, said stocks are likely to pull back due to uncertainty surrounding the presidential election, corporate earnings and interest rates.
Wilson expects equity markets to enter a correction, defined as a decline of 10% or more from recent highs. He’s not the only person on Wall Street who has a glum outlook. A poll by the Reuters news agency found that strategists and economists expect the stock market to end this year near the level it was in May, with many people polled also warning of a correction in the months ahead.
So far, the bearish views look accurate, with the benchmark S&P 500 index having fallen 4% since mid-July. Here are three stocks for a market downturn that could perform well.
Keurig Dr Pepper (KDP)
Beverage company Keurig Dr Pepper (NASDAQ:KDP) looks like a good bet in the event of a prolonged market slump. The company’s financial results have held up despite inflation and high interest rates used to lower consumer prices. Keurig Dr Pepper, which makes drinks such as Snapple, Canada Dry and Dr. Pepper, most recently reported second-quarter EPS of 45 cents, which was in line with analysts’ estimates.
Revenue of $3.92 billion also matched the consensus expectations on Wall Street. Sales were up 3.5% from a year earlier. The company said its sales volume increased by 1.8% during Q2, while its overall prices increased by 1.6% from a year ago. International sales rose 15.5% in Q2 amid a strong push to grow beyond the American market. International sales currently account for less than a sixth of the company’s annual revenue.
Keurig Dr Pepper recently overtook PepsiCo (NASDAQ:PEP) to become the second largest soft drink maker in the U.S., trailing only Coca-Cola (NYSE:KO). KDP stock is flat over the last 12 months (up 1%).
Casey’s General Stores (CASY)
Casey’s General Stores (NASDAQ:CASY) has a winning business model. The company operates a chain of convenience stores and gas stations mostly in rural areas of the U.S. Midwest. In many towns, Casey’s General Stores isn’t just the only gas station around, it’s also the only grocery store. The company’s outlets also sell pizza that has earned rave reviews and a loyal fan base among patrons.
Owing to the essential nature of the gasoline and groceries it sells, Iowa-based Casey’s sees few impacts during an economic or market downturn. In June of this year, the company raised its quarterly dividend payment by 16.3% to 50 cents per share. The dividend hike was announced alongside strong financial results that saw Casey’s report EPS of $2.34, well ahead of the $1.70 expected on Wall Street. Revenue totaled $3.60 billion, which topped analysts’ consensus forecasts of $3.47 billion.
Casey’s currently has 2,658 stores and plans to open 100 more outlets this year. CASY stock has risen 54% over the last 12 months.
Kroger (KR)
Speaking of essential items, grocery store giant Kroger’s (NYSE:KR) stock is likely to hold up if the market plummets. The company tends to report strong earnings no matter what shape the market and economy are in. There was a cloud hanging over KR stock concerning the company’s proposed $25 billion merger with long-time rival Albertsons (NYSE:ACI). However, that cloud has been blown away by news that the two companies have paused their tie-up due to increased regulatory scrutiny.
Specifically, the two companies said they are temporarily putting the merger on hold until a lawsuit filed by the State of Colorado seeking to block the deal is resolved. A trial related to the Colorado lawsuit is scheduled for Sept. 30 of this year. Even before the Colorado challenge, the merger had faced intense scrutiny, as it would create the second-largest grocery retailer in the U.S. after Walmart (NYSE:WMT). The deal would also be the biggest merger in the history of the grocery store industry.
News that the Albertsons merger is on the backburner has given KR stock a lift. Year-to-date, Kroger’s share price has gained 19%.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
