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Wall Street Sees Worst Day in 8 Months: 4 Investing Zones

Zacks

Wall Street witnessed a tumultuous ride on Oct 10. The major indices suffered the worst day in more than eight months as spiking Treasury yields are making investors’ jittery about economic growth. The Dow Jones Industrial Average and the S&P 500 suffered their worst one-day slump since Feb 8, falling more than 3% each while the Nasdaq Composite Index logged in its worst one-day decline of 4.1% since June 2016. Notably, the S&P 500 marked the longest losing streak in two years.

With this slide, the Nasdaq shed 8% in the first eight sessions of the fourth quarter, representing its worst start to a quarter since the first three months of 2016 and the worst start to a fourth quarter since 2008, per Dow Jones Market Data. The Dow Jones tumbled 3.3%, reflecting the worst start to the fourth quarter.

When interest rates rise, bonds become more viable and attractive alternative to equities. U.S.-China trade wars, Hurricane Michael’s landfall in Florida and mid-term election in November have added to the woes.

However, long-term market fundamentals remain bullish. The dual tailwinds of strong corporate earnings and a booming economy will continue to keep the positive momentum alive in the stock market. Historic tax cuts, higher government spending and deregulation are spurring growth. Robust job gains, growing wages, increasing consumer spending, a recovering housing market and 18-year high consumer confidence will continue to drive the longest bull run.

Given the bullish trends, we have highlighted some stock-picking ideas from the top-ranked cohort for investors that could prove extremely beneficial in the current market environment, reducing the risk of a downside:

Low-Beta Stocks

Low-beta stocks exhibit greater levels of stability and usually lose less when the market is crumbling. Though these have lesser risks and lower returns, the stocks are considered safe and resilient.

Guess' Inc. GES having beta of 0.15 seems a good bet in this category. Based in Los Angeles, it designs, markets, distributes and licenses lifestyle collections of apparel and accessories for men, women and children. The stock has an expected earnings growth of 48.57% for the fiscal year (January 2019). It has a Zacks Rank #1 (Strong Buy) and VGM Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.

Value Stocks

Value stocks have proven to be outperformers over the long term and are less susceptible to trending markets. These stocks have strong fundamentals — earnings, dividends, book value and cash flow — that trade below their intrinsic value and are undervalued. These have the potential to deliver higher returns and exhibit lower volatility compared with their growth and blend counterparts.

The Nebraska-based Werner Enterprises Inc. WERN is a premier transportation and logistics company engaged in hauling truckload shipments of general commodities in both interstate and intrastate commerce. It has a Value Score of A and estimated earnings growth of 76.38% for this year. The stock has a Zacks Rank #1.

Quality Stocks

Quality investing seeks safety and protection against volatility. Quality stocks tend to outperform as these are rich in value characteristics with healthy balance sheets, high return on capital, low volatility, elevated margins, and a track of stable or rising sales and earnings growth.

California-based NetApp Inc. NTAP provides software, systems, and services to manage and share date on-premises, and private and public clouds worldwide. It has a low debt/equity ratio of 0.08, 5-year historical EPS growth of 6.88%, an estimated growth rate of 6.16% for sales and 27.38% for earnings this fiscal (April 2019), and a dividend yield of 2.01%. The stock further belongs to a top-ranked Zacks industry (top 20%), and sports a Zacks Rank #1 and VGM Score of B.

Dividend Stocks

The dividend-paying securities are the major sources of consistent income for investors when returns from the equity market are at risk. This is especially true as these stocks offer the best of both these worlds — safety in the form of payouts and stability in the form of mature companies that are less volatile to the large swings in stock prices. The companies that pay out dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.

While there are several top-ranked options available in the space, Massachusetts-based Altra Industrial Motion Corp. AIMC having a strong history of dividend growth seems to be a good pick. The company is a designer, producer and marketer of electromechanical power transmission products. The stock has 5-year historical dividend growth of 11.4%, estimated earnings growth of 25.85% and a good dividend yield of 1.65%. AIMC carries a Zacks Rank #1 and has a VGM Score of A.

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