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5 Stock-Picking Strategies to Counter Market Turbulence

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Trade war has been playing foul on the stock market in the past month, triggering fears of a global recession and a sharp fall in bond yields. The trade drama took a turn for the worse, following China’s retaliation to the earlier proposed 10% tariff on an additional $300 billion in Chinese goods by President Donald Trump to be imposed on Sep 1.

China plans to impose new tariffs of 5-10% on $75 billion worth of imported goods from the United States. The bulk of the Chinese tariffs will take effect on Sep 1, while the rest of the duties will be effective Dec 15.

In response, Trump raised tariffs on $550 billion worth of Chinese goods. Existing tariffs on $250 billion Chinese goods are expected to increase from 25% to 30% effective Oct 1 and planned tariffs on a further $300 billion in Chinese goods will increase from 10% to 15% in two stages — on Sep 1 and Dec 15. Further, Trump ordered U.S. companies to look at alternative ways to make their products in the United States and close operations in China.

Worsening trade tensions are hurting U.S. consumers, pushing up prices of goods and thereby curtailing spending. It will further impact the worldwide economy and corporate profits, particularly at big U.S. exporters. All these will continue to weigh on the stock market and could disrupt global supply chains.

Against this backdrop, we have highlighted some stock-picking ideas from the top-ranked cohort that could prove extremely beneficial for investors by reducing the risk of a downside:

Low-Beta Stocks

Low-beta stocks exhibit greater levels of stability and usually lose less when the market is crumbling. Though these have lesser risks and lower returns, the stocks are considered safe and resilient.

Dr. Reddy's Laboratories Ltd (RDY - Free Report) having beta of 0.21 seems a good bet in this category. Based in India, Dr. Reddy's operates as an integrated pharmaceutical company worldwide. The stock has an expected earnings growth of 25.61% for the fiscal year (March 2020). It has a Zacks Rank #1 (Strong Buy) and VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Value Stocks

Value stocks have proven to be outperformers over the long term and are less susceptible to trending markets. These stocks have strong fundamentals — earnings, dividends, book value and cash flow — that trade below their intrinsic value and are undervalued. These have the potential to deliver higher returns and exhibit lower volatility compared with their growth and blend counterparts.

The Georgia-based Delta Air Lines, Inc. (DAL - Free Report) provides scheduled air transportation for passengers and cargo in the United States and internationally. It has a Value Score of A and estimated earnings growth of 25.1% for this year. The stock has a Zacks Rank #1.

Quality Stocks

Quality investing seeks safety and protection against volatility. Quality stocks tend to outperform as these are rich in value characteristics with healthy balance sheets, high return on capital, low volatility, elevated margins, and a track of stable or rising sales and earnings growth.

United Kingdom-based Federated Investors Inc. (FII - Free Report) is a publicly owned asset management holding company. It has a low debt/equity ratio of 0.26, 5-year historical EPS growth of 13.22%, an estimated growth rate of 14.7% for sales and 13.8% for earnings this year, and a dividend yield of 3.39%. The stock belongs to a top-ranked Zacks industry (top 25%) and carries a Zacks Rank #2 and VGM Score of B.

Dividend Stocks

The dividend-paying securities are the major sources of consistent income for investors when returns from the equity market are at risk. This is especially true as these stocks offer the best of both these worlds — safety in the form of payouts and stability in the form of mature companies that are less volatile to the large swings in stock prices. The companies that pay out dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.

While there are several top-ranked options available in the space, Texas-based Energy Transfer LP (ET - Free Report) having a strong history of dividend growth seems to be a good pick. The company owns and operates diversified portfolios of energy assets primarily in the United States. The stock has 5-year historical dividend growth of 12.3%, estimated earnings growth of 16.52% and a solid dividend yield of 9.26%. Energy Transfer carries a Zacks Rank #2 and has a VGM Score of A.

Gold

Gold generally acts as a store of value and hedge against market turmoil. The metal has been surging on a flight to safety against an escalation in trade war and global growth fears. Acting as a leveraged play on the underlying metal prices, metal miners tend to experience more gains than their bullion cousins in a rising metal market. Hence, mining stocks could outperform in the current trade turmoil.

As such, AngloGold Ashanti Limited (AU - Free Report) seems a lucrative pick as it carries a Zacks Rank #1 and VGM Score of B. It is the third-largest gold mining company in the world measured by production. The stock has an estimated earnings growth rate of 158.5% for this year.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%. This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.

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