Major exchanges such as the S&P 500 and the Dow closed in the red for the third consecutive trading session on September 8, as investors became cautious about short-term economic growth. The major indices, however, are bracing for turns in September. After all, traditionally the ninth is one of the weakest months for the stock market.
El icónico toro de Wall Street en Manhattan, NY.
To quote an article by Barron , since 1928, the broader performance of the S&P 500 has been a negative 0.99%. Similarly, the Dow has witnessed a loss of 0.8% in September since 1950, according to Stock Trader’s Almanac which takes information from an Investopedia note.
Traders have started selling stocks as they remain concerned about the outlook for stocks, especially after strong second-quarter earnings results. The bullish earnings results have already fueled considerable gains for the stocks, which are now considered overvalued and therefore likely to see a drop in prices, sooner rather than later.
Doubts have also been raised about the Fed’s initiative to continue its accommodative monetary policy in the near future to boost the economy. The Fed has already shown signs of reducing its bond buying program in the coming quarters, a move that could easily discourage investors from betting on risky assets like stocks.
There are other headwinds that could derail the stock market’s northward journey anytime soon. President Joe Biden has wanted an increase in corporate taxes. But such a move is not encouraging for stocks, as it could easily reduce the total earnings per share of companies listed on the S&P 500 by 5%, Barron’s article adds.
To top it off, concerns about inflation persist. The Fed’s Beige Book mentioned that business houses are currently experiencing a surge in inflation and rising prices for essential goods are more likely to be passed on to consumers in a number of ways. In particular, bond yields remain high amid rising inflation, hurting the attractiveness of growth-oriented stocks in particular.
At the same time, the Beige Book warned that growing health problems due to the spread of the delta variant of the coronavirus have slowed economic activity from early July to August, and may even slow economic activities in the near future, something that does not occur. A good omen for the stock market.
Goldman Sachs, by the way, has cut its US economic growth target for this year due to weaker-than-expected job onboarding data in August.
Despite these odds, investors should consider investing in safer defensive stocks. After all, these actions are non-cyclical in nature. This means that its performance is not dependent on broader market activities. Companies do not worry about market turns, as their products are always in demand. Undoubtedly, these actions come from sectors such as basic services and basic consumption. This is because the gas, water and electricity requirements will always remain constant. Similarly, the demand for food, tobacco and beverages will always be constant.
Therefore, we have selected five stocks of this type that have a Strong Buy rank:
1. Otter Tail Corporation. Otter Tail Corporation’s OTTR core business is the production, transmission, distribution and sale of electrical power. Zacks’ consensus estimate for its current year earnings has increased 39.2% over the past 60 days. The company’s expected earnings growth rate for the current year is 51.7 percent.
2. J&J Snack Foods Corp. JJSF is an American manufacturer, marketer and distributor of specialty snacks and brand name frozen beverages for the food service and supermarket retail industries. Our estimate for your current year earnings has increased 32.9% in the last 60 days. The company’s expected earnings growth rate for the current year is 183.8 percent.
3. Pilgrims Pride Corporation. PPC produces, processes, markets, and distributes fresh, frozen, and value-added pork and chicken products to retailers, distributors, and foodservice operators in the United States. The estimate for your current year earnings has increased by .4% in the last 60 days. The company’s expected earnings growth rate for the current year is 112.8 percent.
4. MYR Group, Inc. MYR provides electrical construction services in the United States and Canada. The estimate for your current year earnings has increased 14.7% in the last 60 days. The company’s expected profit growth rate for the current year is 28.2 percent.
5. Middlesex Water Company. MSEX treats, stores and distributes water for residential, commercial, industrial fire prevention and other purposes. Zacks’ consensus estimate for its current year earnings has increased 3.7% over the past 60 days. The company’s expected earnings growth rate for the current year is 4.1 percent.