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5 Strong Buy Ultra-Safe Stocks for an Uncertain September

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Wall Street started September with a sharp decline after a choppy August. The lingering trade conflict between the United States and China is taking a toll on U.S. business activities, especially the manufacturing sector. Moreover, the global economy is facing a slowdown due to the trade tussle and several geopolitical concerns.

Manufacturing Activities Decelerate in August

On Sep 3, the Institute of Supply Management (ISM) reported that the U.S. manufacturing PMI (purchasing manager’s index) fell to 49.1% in August from 51.2% in July and lagging the consensus estimate of 51.3%.

August’s reading was the lowest since January 2016. Notably, any reading below 50% indicates contraction in manufacturing activities. Last week, IHS Markit reported that the U.S. manufacturing PMI declined to 50.3% in August from 50.4% in July, reflecting its lowest reading since September 2009.

The ISM reported that a large majority within a panel of more than 300 purchasing and supply-chain management executives expressed diminishing business confidence in light of an intensifying tariff war with China, which resulted in higher input costs and the lack of clarity in government policies.

Slowing global demand significantly affected U.S. manufacturing exports. The new orders index plunged to a seven-year low of 47.2% from 50.8% in July. This index posted a reading of below 50% for the first time since December 2015. Moreover, the new export orders index recorded a reading of just 43.3%, marking its lowest since April 2009.

In a nutshell, shrinkage of U.S. manufacturing activities in August ended the index’s 35-month long expansion with an average PMI index of 56.5%. Apart from the new orders index, both productions of employment indexes declined sharply in August.

New Tariffs Likely to Dent Consumers’ Confidence

On Sep 1, the U.S. government imposed a 15% tariff on $112 billion of Chinese goods. Most of these items will be consumer goods like clothes, shoes and sporting goods. Moreover, President Trump has decided to levy a 15% tariff on a new set of $160 billion Chinese products used for making consumer products.

These new sets of tariffs will likely dent consumer confidence. So far in 2019, U.S. consumer spending, which constitutes two-third of the GDP, remained robust. However, several major consumer goods developers have said that higher tariff will compel them to shift it to end users through increased cost of final products.

Moreover, President Trump’s decision to raise tariff rates from 25% to 30% effective Oct 1 on existing $250 billion of Chinese exports, most of which are inputs to high-tech U.S. products, will force businesses to raise prices of final products as well as trim manpower recruitment in order to remain competitive. Once again, general individuals will be mostly affected.

Notably, last week, the University of Michigan’s revised index of consumer sentiment came in at 89.8% compared with an initial reading of 92.1% and below the 98.4% reading in July. This was the lowest reading of U.S. consumer sentiment since December 2012.

Yields on Government Bonds Plunge

Growing risks in the stock market is compelling investors to dump equities and invest in safe-haven government bonds. This phenomenon is resulting in higher bond prices and declining yields.

Extreme volatility resulted in inversion of yields on 2-year and 10-year U.S. Treasury Notes on Aug 14, for the first time since December 2005. Several economists and financial experts consider treasury yield curve inversion as a clear indication of an impending recession.

The yield curve inversion happened several times last month. Meanwhile, the yield on 30-year U.S. Treasury Note fell below its psychological barrier of 2% to as low as 1.907% last week. On Sep 3, yield on 10-year Notes plunged to 1.441%, its lowest since July 2016. The yield on 30-year Notes stayed at 1.925%, well below the psychological barrier of 2%.

Our Top Picks

At this juncture, we have applied five criterions to pick five ultra-safe stocks to safeguard one’s portfolio. First, assuming the market will remain extremely volatile, low beta (beta value less than 1 but greater than zero) stocks will be less volatile than the broader market. Second, these stocks offer regular dividend, ensuring a steady income stream.

Third, all the stocks have high growth potential for the rest of the year. Fourth, each of these stocks carries a VGM Score of A or B. Finally, each of the picks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our five picks in the past three months.

Allegiant Travel Co. (ALGT - Free Report) is a leisure travel company that provides travel services and products to residents of under-served cities in the United States. It offers scheduled air transportation on limited-frequency, nonstop flights between under-served cities and leisure destinations.

The company has expected earnings growth of 36.5% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 2.3% over the last 60 days. The stock has a dividend yield of 1.97% and beta of 0.89.

Bristol-Myers Squibb Co. (BMY - Free Report) discovers, develops, licenses, manufactures, markets, distributes and sells biopharmaceutical products worldwide. The company offers drugs for oncology, immunoscience, cardiovascular and fibrotic diseases.

The company has expected earnings growth of 7.5% for the current year. The Zacks Consensus Estimate for its current-year earnings has moved 2.6% north over the last 60 days. The stock has a dividend yield of 3.41% and beta of 0.73.

NewMarket Corp. (NEU - Free Report) engages in the petroleum additives businesses. It develops, manufactures, blends and delivers chemical additives that enhance the performance of petroleum products.

The company has expected earnings growth of 16.2% for the current year. The Zacks Consensus Estimate for its current-year earnings has moved 10.4% north over the last 60 days. The stock has a dividend yield of 1.47% and beta of 0.52.

North American Construction Group Ltd. (NOA - Free Report) provides heavy construction and mining services, primarily in Canada. It offers services to large oil, natural gas and resource companies.

The company has expected earnings growth of 228.6% for the current year. The Zacks Consensus Estimate for its current-year earnings has risen 29% over the last 60 days. The stock has a dividend yield of 1.02% and beta of 0.54.

TiVo Corp. provides media and entertainment products for the consumer entertainment industry worldwide. It operates in two segments, Product and Intellectual Property Licensing.

The company has expected earnings growth of 10.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 12.2% over the last 60 days. The stock has a dividend yield of 4.25% and beta of 0.20.

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