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Contested Election Heightens Market Volatility: 5 Safe Picks

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U.S. presidential election is just around the corner. It’s widely believed to be a contested election as there is no clear winner heading into the election day scheduled on Nov 3. Contested elections are unnerving since time and again such neck and neck competition ends up in court, with both parties unwilling to accept the results. No doubt, contested election leads to stock market volatility.
 
For instance, during the election battle of 2000, the outcome of the presidential race took almost five weeks, resulting in heightened volatility and eventually the broader market tanked from the election day through year-end. Unfortunately, the market is now expected to face the same fate, with the Cboe Volatility Index (VIX) remaining at an elevated level. In 2000, the VIX was trading at a range between 22 and 32, while the VIX in recent times is maintaining a range between 25 and 35. Any reading above 20, by the way, indicates volatility.
 
However, bullish investors may argue that the presidential election outcome is inconsequential for the stock market. After all, the stock market historically moved north whether there is a Republican or a Democrat in the White House. According to Ed Clissold, chief U.S. Strategist for Ned Davis Research, as quoted in a CNBC article, benchmarks like the Dow gained an average 1.1% annually under Republicans since 1900, compared to 3.8% under Democrats.
 
But since the United States is a capitalistic society, there are many more factors along with the closely-contested presidential election that are influencing the economy vis-a-vis the stock market. Lest we forget, this year has been anything but ordinary. Rise in new coronavirus cases in the United States and in some parts of Europe raised concerns about an economic shutdown. On the domestic front, delay in the much-needed stimulus measures to pep up the economy along with US-China trade tensions are doing no good to the stock market.

The Winning Strategy

As the stock market will continue to be volatile heading toward the Election Day, investing in stocks unfazed by market gyrations seems wise.
 
Thus, we can opt for defensive players or companies whose business is not solely dependent on activities in the broader market. Demand for products of defensive players will always be constant, regardless of market volatility. Prominent among them are utilities and consumer staples. After all, electricity, gas, water, food and beverages are necessary items. Moreover, we consider low-beta stocks that are mostly less volatile than the markets they trade in. Low beta, in fact, ranges from 0 to 1. These stocks also flaunt a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 
Sempra Energy (SRE - Free Report) is a southern California-based energy services holding company involved in the sale, distribution, storage and transportation of electricity and natural gas. The company currently has a beta of 0.69. The Zacks Consensus Estimate for its current-year earnings has risen 0.8% over the past 60 days. The company’s expected earnings growth rate for the current year is 13.3%.
 
MGE Energy Inc. (MGEE - Free Report) is a public utility holding company. Its principal subsidiary, MGE, generates and distributes electricity to more than 128,000 customers in Dane County, WI. The company currently has a beta of 0.45. The Zacks Consensus Estimate for its current-year earnings has moved 4.8% north over the past 60 days. The company’s expected earnings growth rate for the current year is 5.2%.
 
Dominion Energy Inc. (D - Free Report) produces and transports energy in the United States. It is a major energy company engaged in regulated and non-regulated electricity distribution. The company currently has a beta of 0.36. The Zacks Consensus Estimate for its current-year earnings has climbed 0.8% over the past 60 days. The company’s expected earnings growth rate for the next year is 6.6%.
 
Newell Brands Inc. (NWL - Free Report) designs, manufactures, sources, and distributes consumer and commercial products. The company’s products cater to indoor and outdoor organizations and include food and home storage products.  The company currently has a beta of 0.97. The Zacks Consensus Estimate for its current-year earnings has risen 3.2% over the past 60 days. The company’s expected earnings growth rate for the next year is 14.8%.
 
Flowers Foods, Inc. (FLO - Free Report) produces packaged bakery foods in the United States. The company specializes in baked food products. The company currently has a beta of 0.48. The Zacks Consensus Estimate for its current-year earnings has moved up almost 8% over the past 90 days. The company’s expected earnings growth rate for the current year is 27.1%.
 
Zacks’ 2020 Election Stock Report:
 
In addition to the companies you learned about above, we invite you to learn more about profiting from the upcoming presidential election. Trillions of dollars will shift into new market sectors after the votes are tallied, and investors could see significant gains. This report reveals specific stocks that could soar: 6 if Trump wins, 6 if Biden wins.