There seems to be no end in sight for market volatility which commenced in February fueled by inflationary fears. In fact, President Trump’s adoption of protectionist policies to safeguard the national interest has only escalated the problem.
As we approach the end of the first half of 2018, the day-to-day market fluctuations are only intensifying. At this juncture, investment in low-beta stocks with favorable Zacks Rank will be a prudent move.
Global Trade War Fears Intensify
Ongoing trade related conflicts between the United States and its major trading allies like China, European Union, Canada, Mexico, to name a few are worsening with each passing day.
Since March, the United States and China have been engaged in a trade tussle wherein both have imposed tariffs worth $50 billion on the other’s imports. Trade conflicts between the United States and China have escalated to a point where imposition of tariffs and retaliatory traffic may go up to $450 billion on either side.
Since Jun 1, the U.S. government imposed 25% tariff on steel and 10% on aluminum for imports of Canada, Mexico and the European Union (EU). These tariffs were first imposed in March. However, Canada, Mexico and the EU were spared due to negotiations.
As a result of these trade conflicts, U.S. exports have become vulnerable to retaliatory tariffs. All major trading partners of United States, some of which are key political allies, have either imposed or on the verge of imposing tariffs on U.S. exports.
Technology Sector Plunges on Trade Concerns
On Jun 24, The Wall Street Journal reported that President Trump is planning to impose more restrictions on Chinese companies. Per the report, any company with 25% or more Chinese ownership will be barred from investing in any U.S. tech companies. Likewise, U.S. tech companies will not be allowed to export technology to China.
Following the news, the technology sector suffered a severe blow as China is the most lucrative market for tech behemoths. U.S. tech giants operating in the fields of smartphone, software and Internet-based services, online video streaming and social networking generate a large chunk of their revenues from China. Moreover, China accounted for over 50% revenues for some of the leading semiconductors developers.
China is sure to take retaliatory measures against U.S. restrictions which will significantly affect the business model of these large tech companies. Consequently, Netflix declined 6.5%, its biggest drop since July 2016. Share prices of other tech behemoths like Apple, Alphabet, Facebook and Microsoft also fell 1.5%, 2.6%, 2.7% and 2%, respectively.
Our Top Picks
Stock markets are likely to remain volatile in near future due to trade concerns, geopolitical conflicts and may be some sector specific issues. At this stage, investment in low-beta stocks will be fruitful. The beta is equal to 1 which means that the stock is as volatile as the market. So, a stock is relatively more volatile if it has beta greater than 1 and less volatile if beta is less than 1. However, picking winning stocks can be a difficult task.
This is where our VGM Score comes in handy. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select the winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below depicts price performance of our five picks year to date.
America's Car-Mart Inc. (CRMT - Free Report) operates automotive dealerships and is one of the largest automotive retailers in the United States focused exclusively on the Buy Here/Pay Here segment of the used car market. America's Car-Mart has a beta of 0.91. It has expected earnings growth of 32.2% for current year. The Zacks Consensus Estimate for the current year has improved by 1.8% over the last 60 days.
Argo Group International Holdings Ltd. (ARGO - Free Report) provides reinsurance products and services to a worldwide marketplace. Argo Group International has a beta of 0.62. It has expected earnings growth of 988.1% for current year. The Zacks Consensus Estimate for the current year has improved by 11.7% over the last 60 days.
Eni S.p.A. (E - Free Report) explores, refines, transports and markets natural gas and oil. It also produces chemicals. ENI offers engineering and project management services to the petroleum industry operating in 80 countries. Eni has a beta of 0.86. It has expected earnings growth of 94% for current year. The Zacks Consensus Estimate for the current year has improved by 15.8% over the last 60 days.
Equinor ASA (EQNR - Free Report) is engaged in developing oil, gas, wind and solar energy projects and focuses on offshore operations and exploration services. Equinor has a beta of 0.95. It has expected earnings growth of 44.2% for current year. The Zacks Consensus Estimate for the current year has improved by 32.7% over the last 60 days.
Sasol Ltd. (SSL - Free Report) is engaged in the mining and processing of coal. It also produces chemicals, explores for and refines crude oil, and manufactures fertilizers and explosives. Sasol has a beta of 0.90. It has expected earnings growth of 12% for current year. The Zacks Consensus Estimate for the current year has improved by 4.7% over the last 60 days.
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