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Global Economic Growth Concerns Resurface: 5 Defensive Picks

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After a disappointing 2018, U.S. stock markets have rebounded in January 2019. All three major stock indexes gained significantly. The Dow advanced 7.2%, marking its best January since 1989. The S&P 500 gained 7.9%, its best performance in January since 1987. The Nasdaq Composite surged 9.7%, reflecting highest gain in January since 2001. COBE VIX – market’s fear gauge declined to its four month low at 15.57.

However, volatility seems to have made a comeback in Wall Street if the last two trading days are taken into account. Concerns over slowing global growth have contributed significantly toward this trend. This has dented investors’ confidence to some extent.

During these two days, three major stock indexes – the Dow, S&P 500 and Nasdaq Composite – declined 1%, 1.1% and 1.6%, respectively. At this juncture, it would be prudent to pick up defensive stocks with favorable Zacks Rank to cushion your portfolio.

EC Reduces Eurozone Growth Projections

On Feb 6, the European Commission lowered 2019 growth projection for the 19-member Eurozone from 1.9% in November to 1.3%. The growth rate for 2020 was pegged at 1.6%. The EC cited weaker demand for its exports from China and geopolitical issues related to Brexit as the primary reasons behind lowering growth rate. Moreover, both Germany and Italy, the two largest economies of the Eurozone, are likely to face several headwinds in 2019.

On Feb 7, the Federal Statistical Office of Germany reported that the country’s industrial output--comprised of output in manufacturing, energy and construction--fell 0.4% in December, reflecting four consecutive months of decline. Year over year industrial output declined 3.9%.

Moreover, Italy is on a collision with the European Union over fiscal discipline issues. Italy’s manufacturing sector shrank for a third straight month in December. IHS Markit’s gauge of factory activity came in at 49.2 for December. Additionally, Bank of England reduced the growth rate of the UK for 2019 to 1.2% from 1.7% forecasted earlier.

Slowdown in Chinese Growth

Chinese customs data revealed that the country’s exports increased 7.1% in 2018 compared with 7.9% in the prior year. Similarly, imports declined to 12.9% in 2018 compared with 15.9% in 2017 owing to weak domestic demand. The China Association of Automobile Manufacturers reported that deliveries of passenger vehicles to dealers dropped 4.1% to 23.7 million units, its first decline in 28 years. Moreover, the China Passenger Car Association reported a slump of 6% in retail vehicle sales in 2018.

IMF Reduces Global Growth Projections

On Jan 21, the International Monetary Fund (“IMF”) reduced global economic growth forecasts for 2019 and 2020. The fund reduced its global growth projection for 2019 to 3.5% from 3.7% in October. Likewise, global growth projection for 2020 was reduced to 3.6% from 3.7% in October, marking the second reduction in last three months.

Our Picks

At this juncture, investing in defensive sectors such as utilities, telecom and consumer staple will be fruitful. Defensive stocks are generally immune to vagaries of the economic cycle. It's because these companies provide basic services like electricity, gas and water, which can never go out of demand.

We have narrowed down our search on five stocks with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The chart below depicts price performance of our five picks in the last three months.

Celsius Holdings Inc. (CELH - Free Report) develops, markets, sells, and distributes functional calorie-burning fitness beverages in the United States and internationally. The company has expected earnings growth of 67.3% for current year. The Zacks Consensus Estimate for the current year has improved by 20% over the last 60 days.

Monster Beverage Corp. (MNST - Free Report) develops, markets, sells, and distributes energy drink beverages, soda, and its concentrates in the United States and internationally. The company has expected earnings growth of 12.7% for current year. The Zacks Consensus Estimate for the current year has improved by 1.5% over the last 60 days.

Northwest Natural Holding Co. (NWN - Free Report) builds and maintains natural gas distribution systems in the United States. The company has expected earnings growth of 11% for current year. The Zacks Consensus Estimate for the current year has improved by 0.4% over the last 60 days.

NRG Energy Inc. (NRG - Free Report) operates as an integrated power company in the United States. The company has expected earnings growth of 64.2% for current year. The Zacks Consensus Estimate for the current year has improved by 8.1% over the last 60 days.

Cincinnati Bell Inc. (CBB - Free Report) provides diversified telecommunications and technology services to residential and business customers in the United States. The company has expected earnings growth of 74.4% for current year. The Zacks Consensus Estimate for the current year has improved by 2.8% over the last 60 days.

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