As we step into the second half of 2020, investors need to chalk out plans of not only earning stable returns but also shielding their portfolios, in case the coronavirus situation worsens. With resurgence in cases impeding reopening plans, investors need to battle out to survive in the economy that went from boom to bust in a matter of weeks.
Changing Economic & Social Trends
At present, millions are jobless, several businesses have been shut down or disrupted and corporate profits and gross domestic product are plunging to ‘way worse’ levels than the 2008 financial crisis. However, some companies took swift action in order to keep afloat even during the slump, thanks to the rising digital trend.
In the second half of the year, with economic on recovery mode, the pandemic will still be a threat to normal operations. Countries now need to focus on containing the spread of the virus and preventing fresh outbreaks. Meanwhile, the pandemic has created an inescapable dependence on technology and has rapidly altered consumer preferences.
In the past few months, there has been substantial increase in e-commerce, remote working and online education that has accelerated digitalization at a faster pace. Additionally, a rapid demographic change has been noticed that implies greater demand for healthcare and calls for investments in the sector across the globe.
Criteria for Building a Strong Portfolio
U.S. presidential election and the coronavirus pandemic will play a major role in the second half of 2020. Additionally, economic conditions like recession and unemployment cannot be overlooked as both impact consumers, who are the driving force of the economy.
Considering the afore-mentioned conditions, investors might want to take a look at these criteria before investing in the next half of the year.
The portfolio should have balanced risk assets as stocks that have plunged due to the pandemic will most likely see sharp recovery. Hence, investors might want to take the risk of buying in the dip and holding the assets till the economy is back on track.
Investors can opt for dividend yielding stocks to gain a stable income during the slump. In this low growth and low-yield environment, dividend stocks offer an opportunity for handsome yields. Paying dividend can prevent companies from losing too much money if the stock price falls. Hence, these stocks shield the portfolio in the long term. However, investors should avoid transportation, retail and leisure during this pandemic-driven slump.
The portfolio should also have strategic allocations to defensive assets that can offer protection against unexpected scenarios. Defensive stocks like healthcare, utilities and consumer staples and gold provide a hedge to the portfolio during downturns.
ESG (environment, social and governance) stocks should outperform value stocks in the second half. Stocks with sustainable growth prospects and resilient balance sheets like IT and healthcare seem to have tremendous prospects.
Thanks to the new trends emerging due to the pandemic, investors should also include Internet and medical technology stocks in their portfolios. Companies focusing on remote working, digitalization, medical infrastructure and treatments, Internet’s physical architecture and security are here to stay as well.
5 Top Picks
Given the current coronavirus scenario and taking its impact into consideration, we have shortlisted five stocks that can return well on investment. These stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
For a defensive asset we have chosen gold mining stock Galiano Gold Inc. (GAU - Free Report) . The company engages in the exploration, development and production of gold properties. The company’s expected earnings growth rate for the current year is more than 100% compared with the Zacks Mining - Gold industry’s estimated earnings growth of 22.6%. The Zacks Consensus Estimate for its current-year earnings has climbed more than 100% over the past 60 days.
In the work-from-home category, we have Fortinet, Inc. (FTNT - Free Report) . The company provides broad, integrated and automated cybersecurity solutions. The company’s expected earnings growth rate for the current year is 13.8% against the Zacks Security industry’s estimated earnings decline of 15%. The Zacks Consensus Estimate for its current-year earnings has climbed 8.1% over the past 60 days.
From our healthcare pick we have zeroed in on Meridian Bioscience, Inc. (VIVO - Free Report) . This company develops, manufactures, distributes, and sells diagnostic test kits primarily for various gastrointestinal and respiratory infectious diseases, and elevated blood lead levels. The company’s expected earnings growth rate for the current year is 8.8% compared with the Zacks Medical - Products industry’s projected earnings growth of 3.2%. The Zacks Consensus Estimate for its current-year earnings has climbed more than 100% over the past 60 days.
For our high-yield dividend pick, we have Crescent Capital BDC, Inc. (CCAP - Free Report) .This business development company focuses on originating and investing in the debt of private U.S. middle-market companies. The company’s expected earnings growth rate for the current year is 2.8% against the Zacks Financial - SBIC & Commercial Industry expected earnings decline of 15%. The Zacks Consensus Estimate for its current-year earnings has climbed 13.3% over the past 60 days. Crescent Capital BDC has a dividend yield of 12.4%.
As the ESG pick for the list, we picked NextEra Energy, Inc. (NEE - Free Report) . This company generates, transmits, distributes, and sells electric power to retail and wholesale customers. The company’s expected earnings growth rate for the current year is 8.5% against the Zacks Utility - Electric Power industry’s estimated earnings decline of 0.6%.The Zacks Consensus Estimate for its current-year earnings has climbed 0.2% over the past 60 days.
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
See 8 breakthrough stocks now>>