From the “sell in May and go away” to the Santa Clause rally, there are numerous calendar-driven investing strategies. Lately, talks that September is the worst month for stocks have been making the rounds, and rightly so.
Devastating storms continue to affect the energy, restaurant, travel and insurance industries in the United States. While hurricane Irma has begun its destructive barrage on Florida, the estimated impact of hurricane Harvey on the economy surpasses the combined effect of hurricanes Katrina and Sandy. As if that wasn’t enough, North Korea continues to add to geopolitical tensions at a time when U.S. stock valuations are stretched and global growth soft.
Meanwhile, investors should practice caution and pick stocks of companies with big brands. Such companies have established business models and tend to draw consumers and investors, even when the equity market gets rocky.
Irma Batters Florida, Harvey Drains Coffers
Irma made landfall on Florida’s southern islands. The hurricane has claimed three lives and has resulted in power loss for more than 1 million customers. Residents of Miami and Tampa moved to safer zones, leaving behind ghost towns. Per National Weather Service, Irma gained strength as category 4 storms after being downgraded to category 3 as it moved to Florida. Governor Rick Scott has warned that Irma is stronger than hurricane Andrew that had wrecked the state in 1992 (read more: Hurricane Irma Set to Hit Florida: Gainers & Losers).
AccuWeather raised the estimated damage caused by Hurricane Harvey to $190 billion, or a full 1% of U.S. GDP. This highlights an increase from an earlier tally of $160 billion. The most affected area is likely to be Houston, the fourth biggest city in the United States. The city is expected to remain uninhabitable for weeks or even months, thanks to mold and dirty water.
Harvey has crippled a dozen refineries including the biggest in the country, Saudi Arabian Oil Co.’s Motiva facility in Port Arthur and Exxon Mobil Corp’s (XOM - Free Report) Baytown facility. Both of the facilities account for more than 30% of U.S. refining capacity, per HIS Markit. Meanwhile, restaurant companies with business concentration in Texas and surrounding areas have been affected the most. Sonic Corporation (SONC - Free Report) and Jack in the Box Inc. (JACK - Free Report) have almost one-third of their store base in Texas. And for airlines, United Continental Holdings Inc (UAL - Free Report) will eventually have to bear the brunt since 19% of its capacity is in Houston. Major insurance companies are also factoring in the catastrophic effect of the hurricanes on their business (read more: 4 Home-Improvement Stocks to Buy Post Harvey Mayhem).
North Korea Threatens ‘Greatest Pain’ for Sanctions
North Korea, in the meanwhile, threatened to inflict ‘pain and suffering’ on the United States if it issues sanctions in response to Kim Jong-un regime’s sixth nuclear test last week. Notably, the bomb is an advanced hydrogen one that can be placed on an intercontinental ballistic missile. North Korea’s Foreign Ministry said that if the United States “does rig up the illegal and unlawful resolution,” it would respond in kind.
The White House reacted strongly and warned North Korea that military actions are still on the table if Pyongyang threatens the United States or its allies. The White House wants the United Nations to impose a halt to oil exports to North Korea and at the same time freeze Kim Jong-un’s assets. The United States is also demanding a ban on North Koreans working abroad since they pass most of the foreign currency to the regime.
U.S. Stocks Overvalued, China Raises Global Growth Worries
A record number of fund managers see the U.S. market as the most overvalued in the world. Among the 20 valuation metrics tracked by Ned Davis Research, 16 indicate that the U.S. stocks are extremely overvalued.
The stocks’ current cyclically-adjusted price-earnings ratio has only been exceeded in 1929 and 2000 – both prior to major corrections. In 1929, Wall Street was subjected to an infamous crash, while 2000 saw the dotcom implosion. This time around, expansion in profit margins led to lofty valuations, which raise concerns of a possible downturn (read more: 5 Great Value Picks for the World's Priciest Market).
Overnight trade data from China was rather mixed, raising questions about global growth. China’s exports did increase from a year earlier in August, but, the recent rise in yuan’s value is starting to weigh on such exports. The yuan rose 2% against the U.S. dollar in August, its highest monthly gain since July 2005. The currency rebounded from a 6.6% decline last year to its highest level in more than 20 months this week. Chen Lin, general manager at Hefei DGCT Imp. & Exp. Co. Ltd, added that rising yuan is eating into profits from his pet toys business. Imports are also expected to take a beating because the government’s efforts to reduce debt are having an adverse impact on domestic demand.
4 Solid Big-Brand Stocks for Now
With so many concerns plaguing investors, big-brand stocks offer some respite at the moment. The value of brands is that they instantly convey to consumers information about quality, durability and consistency. These traits help such stocks counter market gyrations. They also boast stable cash flow and dividend yields.
While finding companies that offer these traits isn’t easy, they do exist. To help you with this, we have selected five mega-brand stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Home Depot Inc (HD - Free Report) is the world’s biggest home-improvement retailer. The company enjoys a leading market position in the consumer side of the home-improvement industry, which comprises homeowners who complete their own projects or pay the retailer for help with installation. Home Depot has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings advanced 1.1% over the last 60 days. The company’s estimated growth rate for the current and next quarters are 12.8% and 10.4%, respectively. Home Depot has a dividend yield of 2.23% while its five-year average dividend yield is pegged at 2.04%.
Ross Stores, Inc. (ROST - Free Report) is the off-price apparel and home fashion chain in the United States. Being the nation’s largest off-price retail chain, it has a great deal of purchasing power.Ross Stores has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings increased 2.2% over the last 60 days. The company’s estimated growth rate for the current and next quarters are 7.7% and 19.6%, respectively. Ross Stores has a dividend yield of 1.09%, while its five-year average dividend yield is pegged at 0.96%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Caterpillar Inc. (CAT - Free Report) is a pioneer in manufacturing of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives.The company has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings rose 22.5% over the last 60 days. The company’s estimated growth rate for the current and next quarters are 40.5% and nearly 47%, respectively. Caterpillar has a dividend yield of 2.65%, while its five-year average dividend yield is pegged at 3.14%.
Morgan Stanley (MS - Free Report) is a leading global financial services firm providing investment banking, securities, wealth management and investment management services.The company has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings improved 2.9% over the last 60 days. The company’s estimated growth rate for the current quarter is 4.6%. Morgan Stanley has a dividend yield of 2.27%, while its five-year average dividend yield is pegged at 1.45%.
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