Back to top

6 Stocks to Prepare for a Global Economic Slowdown

Read MoreHide Full Article

On Jan 21, the International Monetary Fund (IMF) reduced its global economic forecasts for this year and the next. A slowdown in Europe and certain emerging markets, and the ongoing trade conflicts were cited as the major reasons for these cuts. The global lending agency also thinks a slowdown in China and a likely “No Deal” Brexit are the other factors causing a reduction in its projections.

The IMF’s fears were echoed by fresh official data released by China’s government. The world’s second-largest economy expanded at its slowest pace in 28 years in 2018, likely an outcome of the U.S.-China trade war.

With a global economic slowdown looking imminent, it makes sense to fortify your portfolio for such conditions. In such an event, demand for products and services generated by utilities, consumer staples and medical companies remain invariant. Investing in stocks from these sectors looks like a smart option.

IMF Reduces Global Forecasts for 2019 and 2020

The IMF has revised its global forecasts for 2019 and 2020 to 3.5% and 3.6%, respectively. These are 0.2% and 0.1% lower for respectively 2019 and 2020 than the projections released earlier in October. That this is the second such cut in three months is a cause for great concern. The IMF had made the last such reduction in October, citing the ongoing U.S.-China trade war as a major issue.

The latest cuts also acquire special significance since they were released ahead of the annual World Economic Forum, which began on Monday at Davos, Switzerland. Global policy leaders will now possibly have to discuss ways and means to cope with an end to an extended period of stable growth.

According to IMF Managing Director Christine Lagarde: “After two years of solid expansion, the world economy is growing more slowly than expected and risks are rising.” Lagarde has urged policymakers to prepare themselves for a “serious slowdown” by improving their economies’ ability to handle such risks.

China’s Economic Growth Slumps in 2018

Adding to global slowdown fears was the latest growth data released by China’s government, per which its economy expanded at 6.6% last year. This is the most sluggish pace experienced since 1990. Such a slump was in line with most analysts’ expectations, given that it is engaged in a protracted trade war with the United States.

And on Monday, Ning Jizhe, who heads China’s statistics bureau more or less confirmed such speculation. Speaking to reports, Ning said the trade war with the United States is weighing on the country’s economy. Of course, Ning also added that the resulting impact was manageable and the economy was being fueled by domestic demand.

A more plausible explanation is that China was facing an impending slowdown even before the trade war began in earnest. For some time now, Beijing has been trying to reduce surging debt levels without affecting growth significantly. China had prepared itself for a slower pace of expansion in any case, but the trade war has intensified its problems.

Our Choices

The latest reduction in global growth projections by the IMF is sending off alarm bells across the world. The global lender’s dim view of economic growth over the next two years is echoed by China’s latest growth figures, which indicate that a major slowdown is in the cards.

Investing in stocks whose demand remains invariant even during an all-encompassing slowdown looks prudent at this time. Picking utilities, consumer staples and medical stocks for your portfolios would be a good option. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. 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 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 based on a good Zacks Rank and VGM Score.

Archer Daniels Midland Company (ADM - Free Report) is one of the leading food processing companies in the world.

Archer Daniels Midland carries a Zacks Rank #1 (Strong Buy) and has a VGM Score of B. The company has expected earnings growth of 1.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.2% over the last 30 days.

Molina Healthcare, Inc. (MOH - Free Report) is a multi-state managed care organization participating exclusively in government-sponsored health care programs.

Molina Healthcare has a VGM Score of B. The Zacks Consensus Estimate for the current year has improved by 3.6% over the last 30 days. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Eli Lilly & Company (LLY - Free Report) is a global healthcare company with a Zacks Rank #2 (Buy) and VGM Score of A. The company has expected earnings growth of 5.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 1.3% over the last 30 days.

Spark Energy, Inc. (SPKE - Free Report) is an independent retail energy services company.

Spark Energy carries a Zacks Rank #2 and has a VGM Score of A. The company’s expected earnings growth for the current year is more than 100%.

Lamb Weston Holdings, Inc. (LW - Free Report) is a leading global manufacturer, marketer and distributor of value-added frozen potato products, particularly French fries.

Lamb Weston carries a Zacks Rank #2 and has a VGM Score of B. The company has expected earnings growth of 15.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.6% over the last 30 days.

CenterPoint Energy, Inc. (CNP - Free Report) is a domestic energy delivery company that provides electric transmission & distribution, natural gas distribution and competitive natural gas sales and services operations.

CenterPoint Energy carries a Zacks Rank #2 and has a VGM Score of B. For the current year, the company has expected earnings growth of 6%. The Zacks Consensus Estimate for the current year has improved by 0.1% over the last 30 days.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?

From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.

This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.

See Stocks Today >>



More from Zacks Analyst Blog

You May Like

Published in