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Trade War Fears Rattle Wall Street: 5 Ultra-Safe Buys

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President Trump’s latest move to levy new tariffs on Chinese imports has made possibilities of a solution to the trade dispute bleak. On the contrary, the latest tariffs have rattled financial markets, with escalating trade tensions killing investors’ risk appetite.

Given the turmoil, investing in low-beta defensive companies seems to be the safest option. Such stocks provide risk-adjusted returns and steady earnings regardless of the state of the equity market.

Trump Announces Tariffs on Chinese Goods

Trump, recently, in a series of tweets said that the United States would impose 10% tariffs on $300 billion of Chinese products starting Sep 1. Investors for quite some time have been relaxed about U.S.-China’s trade front. But now, such tweets have unnerved investors with the Dow closing about 281 points down in the last trading session.

Thanks to Friday’s decline, the blue-chip index extended its losing streak to four straight sessions. In fact, the broader S&P 500 and the tech-heavy Nasdaq declined every day in the past week. However, it was not just the stock market that had to bear the brunt. Commodities market also took a beating, with U.S. crude oil benchmark tanking nearly 7% last Thursday. After all, higher tariffs no doubt erode profit margins and affect the overall economy.

But why has Trump issued the latest round of tariffs? The President aims to extract trade concessions from China on an array issues, including intellectual property theft and currency manipulation. Second, let’s admit that he wants the Fed to adopt an even more aggressive monetary policy easing stance in the upcoming September FOMC meeting. And with the stock market getting erratic, there is a fair chance that the Fed will cut rates further in the next meeting. Lest we forget, last month Fed trimmed rates by a quarter percentage point citing concerns about global economic growth due to trade war issues.

Beijing, on the other hand, is possibly looking to defer a trade deal decision until the U.S. presidential election next year. Needless to say, China can easily become more hardline as its economy is predominantly dependent on expansion in domestic demand rather than exports. Trump’s announcements, thus, will have a modest impact on their growth, reducing their pace of expansion by a meager 0.1%, per the consultancy Oxford Economics.

Unfortunately, the same cannot be said about American companies. Trade-sensitive sectors have been affected the most. They say that the cost of critical supplies needed to make products might jump in the near term. Consumer discretionary players were the worst performers among the S&P 500 stocks in the past week, sliding 4.4%, while the tech bigwigs were not far behind, down 4.3%.

 

(Source: http://www.sectorspdr.com)

Multinationals, in particular, are worried about their future ability to trade in China as it is a massive market for them.

5 Ultra-Safe Stocks to Buy Now

As the markets are plagued with trade-related uncertainty, defensive stocks seem to be the safest investment option. Such stocks are generally non-cyclical, or companies whose business performance and sales are not highly correlated with activities in the broader market. Their products are in constant demand irrespective of market volatility and such names include companies from the utilities and consumer staples sectors.

Utilities are deemed defensive stocks as electricity, gas and water are essentials. Food, beverage and tobacco companies are true defensive plays as demand for such staple stocks remains unaltered during market gyrations.

Further, only low-beta stocks from such defensive companies have been selected. After all, low-beta stocks are the ones that are less correlated to the index and tend to be less volatile. In this case, a low beta ranges from 0 to 1.

We have selected five such stocks that hold a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Southwest Gas Holdings, Inc. (SWX - Free Report) purchases, distributes, and transports natural gas in Arizona, Nevada, and California. It has a Zacks Rank #2 and a beta of 0.33. The Zacks Consensus Estimate for its current-year earnings has risen 0.5% in the past 90 days. The stock’s expected earnings growth rate for the current year is 6.5% versus the Utility - Gas Distribution industry’s estimated decline of 1.5%.

Alliant Energy Corporation (LNT - Free Report) operates as a utility holding company that provides regulated electricity and natural gas services in the Midwest region of the United States. It has a Zacks Rank #2 and a beta of 0.29. The Zacks Consensus Estimate for its current-year earnings has climbed 0.4% in the past 60 days. The stock’s expected earnings growth rate for the current year is 3.7% versus the Utility - Electric Power industry’s estimated rally of 0.8%.

Unitil Corporation (UTL - Free Report) engages in the distribution of electricity and natural gas in the United States. It has a Zacks Rank #1 and a beta of 0.11. The Zacks Consensus Estimate for its current-year earnings has increased 0.9% in the past 60 days. The stock’s expected earnings growth rate for the current year is 4.1% versus the Utility - Electric Power industry’s projected rally of 0.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Helen of Troy Limited (HELE - Free Report) designs, develops, imports, markets, and distributes a portfolio of consumer products. It has a Zacks Rank #1 and a beta of 0.64. The Zacks Consensus Estimate for its current-year earnings has risen 1.8% in the last 60 days. The stock’s expected earnings growth rate for the current year is 5.8% versus the Cosmetics industry’s expected rally of 2.7%.

McCormick & Company, Incorporated (MKC - Free Report) markets, and distributes spices, seasoning mixes, condiments, and other flavorful products to the food industry. It has a Zacks Rank #2 and a beta of 0.18.  The Zacks Consensus Estimate for its current-year earnings has climbed 0.8% in the past 60 days. The stock’s expected earnings growth rate for the current year is 6.8% versus the Food - Miscellaneous industry’s estimated rally of 5.1%.

Southwest Gas Holdings, Alliant Energy, Unitil, Helen of Troy and McCormick & Company have a growth rate of 16.3%, 32.3%, 30.1%, 72.8% and 70.6%, respectively, so far this year. Take a look —

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