5 Of The Best Stocks To Buy After A Market Correction

Wall Street is off to a disastrous start in the second quarter. Major bourses tumbled into correction for the second time this year and closed below key technical levels. Elevated trade tensions between the United States and China along with weakness in large-cap tech stocks are cited to be the reasons for the free fall. The prospect of rising interest rates and lofty valuations are expected to trigger another stock market correction in the near term.

Given the turmoil, investing in defensive companies seems prudent. Such stocks provide risk-adjusted returns, consistent dividend and steady earnings growth regardless of the state of the equity market.

How Did the Benchmarks Perform?

The S&P 500 finished 2.2% lower at 2,581.88 on Apr 2, down 10.1% from its record high in Jan 26. The broader index closed below its 200-day moving average for the first time since the U.K.’s vote for Brexit in June 2016. The Dow Jones also closed below the aforesaid technical level, indicating further downtrend in the near future.

Unlike the S&P 500 and the Dow Jones, the Nasdaq somehow managed to avoid a correction but it did lose more than 10% from its record high attained in March. This leaves all the three major indices in negative territory for the year, while the CNNMoney’s Fear & Greed Index slipped further into “extreme fear” territory.

Global Trade War

Selling in stocks intensified after China decided to impose tariffs on about 130 U.S. goods, including a 25% charge on U.S. pork and 15% on fruits. The world’s second largest economy retaliated against Trump’s plan to slap tariffs on Chinese steel and aluminum shipments.

All these have not only weighed on U.S. meat producers as well as industrial stocks, investors panicked as a full-fledged trade war might deal a heavy blow to economies, resulting in widespread unemployment. It may also dent first-quarter corporate earnings results slated to release this month.

Big Tech Selloff

Adding to the downbeat tone is a sharp selloff in the technology sector. Investors remained concerned about tighter regulations for large tech companies. The sector took a beating following the backlash over Facebook, Inc’s (NASDAQ:FB) handling of user data. Everyone raised questions as to how Cambridge Analytica, which worked on Trump’s election campaign, had gained access to personal data on roughly 50 million Facebook users without their knowledge.

Amazon.com, Inc. (NASDAQ:AMZN) , in the meantime, slipped after Trump lashed out at the e-commerce company on its tax policy and subsequent effect on bricks-and-mortar retailers. Another tech major Intel Corporation (NASDAQ:INTC) took a beating after Apple Inc (NASDAQ:AAPL). decided to break away from the chip maker and make its own chips in its Mac computers as early as 2020.

Electric car maker Tesla, Inc. (NASDAQ:TSLA) is also sinking after one of its driverless technology vehicles was involved in a fatal crash, while it recalled 123,000 Model S vehicles because of an issue related to a power steering component.

Rate Hike Fears

Amid all these, Jerome Powell-led Federal Reserve has hiked rates by a quarter-percentage point and projected a steeper path of rate hikes in 2019 and 2020.

This hasn’t gone down well with investors as we all know that they had piled up on U.S. stocks with the notion that quantitative easing will help the domestic economy grow at a better rate than emerging economies like China. After all, rate hikes will raise borrowing costs, eventually denting corporate profits and affecting the U.S. economy.

How to Prepare for the Setback

As the markets seem to be plagued with widespread uncertainty, defensive stocks seem to be the safest investment option. Such stocks are generally non-cyclical, or companies whose business performance and sales are not highly correlated with the activities in the larger market. Their products are in constant demand irrespective of market volatility and such names include companies from the utilities and consumer staples sectors.

Utilities are deemed defensive stocks as electricity, gas and water are essentials. Food, beverage and tobacco companies are true defensive plays as demand for such staple stocks remains unaltered during market gyrations.

5 Solid Choices

We have, thus, selected five solid stocks from the aforementioned defensive sectors that boast a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Utilities

CenterPoint Energy, Inc. (NYSE:CNP) operates as a public utility holding company in the United States. The stock has a Zacks Rank #1 and a dividend yield of 4.2%. The Zacks Consensus Estimate for its current-year earnings rose 5.4% in the last 60 days. The company is expected to return 13.1% this year, better than the Zacks Investment Research

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Written By: Zacks Investment Research