Again the pressure on the stock markets is increasing. A wide range of analysts believe that the recovery since the low of March 23 is now on shaky bases. Additional risks of concern include the US economy, which looks worst in a generation, along with many states bracing for a second wave of the corona virus pandemic.
Investors saw these fears manifest on Thursday when the day fell 6% and nearly $ 2 trillion worth of equity was cleared. Cyclical stock sales were particularly intense, including airline, power and bank shares – the typical equity bets on a rapid economic recovery.
While the slump is still small compared to the S&P 500's 45% progress since late March, it still highlights the vulnerability of the current rally. In this uncertain environment, a major challenge remains for investors: to find stocks that are less sensitive to daily market fluctuations and that can be bought and held over the long term.
Building on that theme, here's our short list: three stocks that are less sensitive to economic cycles that are also highly defensive in nature.
1. Nike
Sportswear giant Nike (NYSE 🙂 is a great candidate for buy and hold in case of a second big sale on the market caused by COVID -19 fears. The company has a strong financial position and can endure a weak period.
It ended with $ 3.2 billion in cash. The Beaverton, Oregon-based company has just over $ 6 billion in long-term debt and operating lease obligations on its books, and is not facing significant debt obligations until 2023. Nike can free up additional liquidity if necessary by ending the repurchase of its own shares. $ 957 million on them in the most recent quarter.
Nike & # 39; s brand strength and resilience of its business model was demonstrated by the successful implementation of the company's e-commerce strategy during the pandemic, when most stores were closed. Chief Executive Officer John Donahoe told analysts in late March that the company's e-commerce business remains “in growth mode,” despite the demand shock caused by the corona virus outbreak.
"In a time when people were at home, we were quick to take full advantage of our digital app ecosystem and Nike expert trainer network," he said by accelerating app sign-ups and involvement in Nike Training Club training.
Trading at $ 96.43, Nike stocks have rebounded strongly from the March low of $ 60.58 in the post-pandemic market rally. If the stocks weaken on a wide sell-off, investors may find a good starting point for acquiring shares.
2. Home Depot
Home improvement companies outperformed the wider market this year. They took advantage of the government's home confirmation, which led many Americans to invest more money in home improvement during quarantine.
Analysts expect this trend to continue. It is predicted that more people will move from the big cities and move to the less crowded suburbs because of the COVID-19 crisis. De-urbanization will benefit home improvement retailers, according to a recent comment from Bank of America's own and quantitative strategist Savita Subramanian.
Just before the deadly pandemic hit, Home Depot (NYSE 🙂 was already rewarded for its $ 11 billion spending effort that modernized the company's stores, improved digital options, and improved offerings for its major trading customers. Armed with these upgrades, sales of Home Depot stores are likely to pick up quickly in the post-crisis period.
Sales of Home Depot digital platforms grew by about 80% to the extent that people preferred online shopping over personal browsing during the locks. In addition, Home Depot is one of the best-placed retailers to survive the current recession, making it a strong defense candidate to buy when the next price correction comes.
Shares closed at $ 242.45 on Friday after decreasing about 6% in the past trading week. Even after Thursday's stock market decline, the stock has still risen 72% from its March low.
3. General Mills
Basic supplies for consumers are classic defensive games because they are less tied to the economic cycle. That's why we love General Mills (NYSE :), the maker of such well-known brands as Cheerios cereal, Yoplait yogurt, and Nature Valley granola bars.
Trading at $ 60.15, the stock has risen 28% since the March lows and is unlikely to show much volatility even if the market plunges again. Another benefit of owning GIS shares is that investors receive a dividend that delivers a very decent 3.24%. That's a good return that's fortunately reliable too – General Mills has paid dividends continuously for 120 years.
In recent years, General Mills has attempted to diversify its income base to provide a boost. The company acquired Blue Buffalo Pet Products in 2018, the largest deal in 18 years.
The acquisition added a new industry to the company's portfolio, at a time when the traditional food unit was under pressure from consumers who quickly changed their eating habits in search of fresher, greener and less sugary foods.
General Mills shares are likely to underperform the bull market. However, it is a defensive name that will perform better in bear markets.
