The first half of 2020 was all about the outbreak of coronavirus in late January and its rapid spread to various parts of the world by the end of the first quarter. Although Wall Street snapped its longest bull run ever in March, unprecedented stimulus measures by global central banks and governments triggered a market rally at the start of the second quarter, despite lockdowns.
Rising hopes of vaccines and medication also contributed to the solid run. From mid Q2, global economies including the United States started to reopen. Pent-up demand helped U.S. economic indicators log a record monthly jump in May.
However, the euphoria did not last long as the number of coronavirus cases started soaring with easing lockdowns. Some states re-issued social distancing measures, raising questions about the momentum of recovery.
As a result,investors should prepare well before investing in 2H as many market watchers are suspecting rising volatility ahead. Below we highlight a few investing strategies that could be useful in the coming days.
Hunt for Yield Looking Tough, But Not Impossible
As COVID-19 took global markets in its grip since the start of 2020, safe-haven asset U.S. treasuries shot up and in turn brought down yields. As of Jun 29, 2020, yield on benchmark U.S. treasuries was as low as 0.64% while the real yield slipped negative 0.70%. It shows how tough it has become to earn solid yields at the current level.
Choosing the right dividend stocks, in any case, became tough in the current scenario as companies are halting or cutting pay-out to restore cash. Still, there are some hidden-gems that can be relied upon for earning solid current income.
These stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy), five-year historical dividend growth at least 1%, long-term growth forecast more than 5%, debt-equity ratio less than one and a cash ratio greater than 1X. Examples of such stocks are Juniper Networks Inc. JNPR (yield 3.61%), BlackRock Inc. BLK (yields 2.71%) and Air Products & Chemicals Inc. APD (yields 2.27%).
Time to Get Defensive Now?
The second wave of virus contagion is threatening the long-awaited reopening of trade. One JPMorgan equity strategist believes that it’s time to take a more defensive tilt toward the portfolio. Goldman Sachs also sees more volatility ahead. Per Goldman, “consensus expects 9% upside to the typical stock over the next 12 months and volatility should remain elevated through the rest of the year, suggesting low risk-adjusted returns in the coming months.”
Against this backdrop, it is wise to bet on low-beta stocks. Low-beta products exhibit greater levels of stability than their market-sensitive counterparts and usually lose less when markets are sinking. Given lesser risks and lower returns, these are considered safer.
In this regard, investors can place bets on T-Mobile US TMUS (Zacks Rank #2; beta: 0.30X; Long-Term Growth Estimate: 18.93%) and the biotech company Moderna MRNA (Zacks Rank #2; beta: 0.68X;Long-Term Growth Estimate: 33.60%).
Go for Gold
Safe-haven demand for gold will stay strong despite bear market rallies as several Wall Street analysts still believe the latest rally doesn’t have legs. Plus, a super-dovish Fed, which cut some strength out of the greenback is helping bullion prices and ETFs like SPDR Gold Trust GLD.
Recently, Goldman Sachs updated its 12-month gold price forecasts to $2,000 an ounce from $1,800 and maintained its long December 2020 gold trading. Low oil price is another plus for gold mining stocks as the liquid commodity is a key input. Still-cheaper valuation and relatively low debt are other the positives for gold miners. Zacks Rank #2 AngloGold Ashanti Ltd. AU can be considered from this field.
Low P/E Stocks in High Momentum
The past few days have been rocky on virus resurgence fear. Still, there are a few stocks that have swiftly beaten the broader market, meaning these have the ability to survive any imminent volatility. In this context, we have highlighted stocks that have a lower P/E ratio than the S&P 500 (about 27X).
Discount retailer Big Lots Inc. BIG (P/E: 9.80X, LTG rate: 7.07%, past week stock gains: 24.3%) and investment management firm BrightSphere Investment Group BSIG (P/E: 8.64X, LTG rate: 7.13%, past week stock gains: 14.3%) fall in this category. Both stocks carry a Zacks Rank #1.
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