14 Top Stocks to Buy If ‘Risk-Off’ Sentiment Returns and Causes a Market Pullback

Paul Dykewicz

Fourteen top stocks to buy if “risk-off” investor sentiment causes a market pullback include gold and dividend-paying consumer goods companies.

The 14 top stocks to buy during a potential market retreat in the months ahead may be needed, based on the latest data of economic weakness and forecasts of more to come from the U.S. Bureau of Economic Analysis (BEA). Part of that caution stems from a dramatic slowdown in first-quarter gross output (GO) — a comprehensive measure of total economic spending that includes intermediate stages of production.

GO is described as the top-line of economic production, compared to the bottom-line represented by gross domestic product (GDP), said Mark Skousen, PhD, an economist who is a Presidential Fellow at Chapman University. However, the more commonly used GDP focuses on final output only, giving excess emphasis to consumer spending and undervaluing the importance of business spending that is tracked by GO, he added. 

Mark Skousen, a descendant of Benjamin Franklin, meets with Paul Dykewicz in Philadelphia. Skousen’s premium investment services consist of Home Run Trader, Five Star Trader, TNT Trader and Fast Money Alert.

GO Data Offers Hope for 14 Top Stocks to Buy If ‘Risk-Off’ Sentiment Returns

Skousen, whose flagship investment service is his Forecasts & Strategies investment newsletter, has a five-stock portfolio of income-paying companies that feature the so-called “dogs of the Dow,” choosing undervalued and high-dividend-paying equities in the Dow Jones Industrial Average. Those stocks are updated in August and tend to outperform the market each year.

Skousen expects the economy and the market to show improvement later in 2020, based significantly on his reading of current gross output data and trends. For instance, GO has fallen less than GDP and tends to be a better leading indicator of the economic outlook due to its inclusion of intermediate stages of production.

Gross output declined in the aftermath of current political unrest, as well as negative effects of the COVID-19 pandemic and government shutdown of the economy in response, Skousen opined. However, GO might still offer some promise for a meaningful recovery later this year, he added.

Business Spending Shows Potential of 14 Top Stocks to Buy If Risk-Off Trading Unfolds

Business spending, which Skousen regards as the best signal of overall economic recovery, fell significantly less than consumer spending. This may show that the economy is more fundamentally sound than many forecasters realize.

While some of the business spending came in response to the current COVID-19 pandemic, businesses also used a significant portion of those expenditures to transform their operations for opening more fully when government closing mandates are lifted. As a result, the economy might recover faster than currently expected but not without bumps along the way. The most recent jobs report also offered hope that a recovery by the end of 2020 is a strong possibility.

After delivering steady increases over the past 42 consecutive quarters, first quarter 2020 GO declined 4% in real terms after adjusting for the effects of inflation. The last time real GO declined — in the second quarter of 2009 — occurred in the aftermath of the 2008 economic pullback. While still growing, GO had slowed its climb to 1.1% in fourth-quarter 2019.

Gold Features 1 of the 14 Top Stocks to Buy If Risk-Off Investing Takes Hold

Gold and silver are “hot,” and Skousen has precious metals recommendations in his Forecasts & Strategies newsletter and his four trading services. The current gains for those holdings ranged between 10% and 35% during the past two months.

Fueled by easy money, out-of-control government spending and fear among many investors that presumptive Democratic presidential nominee Joe Biden and the political party’s “radical” elements will take over the government in the November election, gold is rising, Skousen said.

“When it comes to the risk-off trade, it’s all about finding quality safe havens proven to protect capital,” said Jim Woods, editor of the Intelligence Report, Successful Investing and Bullseye Stock Trader advisory services. “Gold is one of my preferred safety trades, and specifically mining stocks in the iShares MSCI Global Gold Miners ETF (NASDAQ:RING).”

RING is an exchange-traded fund that features an array of major gold stocks. Investors may choose to buy shares in the gold miners individually or hedge their bets though a fund such as RING that offers exposure throughout the sector. 

Chart courtesy of www.StockCharts.com

Paul Dykewicz meets with Jim Woods before COVID-19 to discuss new investment opportunities.

Other risk-off trades Woods likes are best-of-breed blue chip stocks such as Johnson & Johnson (NYSE:JNJ), Lowe’s (NYSE:LOW) and American Tower REIT (NYSE:AMT). 

Chart courtesy of www.StockCharts.com

Chart courtesy of www.StockCharts.com

Chart courtesy of www.StockCharts.com

The 14 Top Stocks to Buy Offer Some Protection If COVID-19 Woes Persist 

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“Each of these stocks are recommendations in my Intelligence Report service, and each has handily bested the market in this very tumultuous, COVID-19 year,” said Woods. He also teams up with Skousen on the Fast Money Alert trading service that just notched a 93%-plus gain for their subscribers by recommending electric vehicle manufacturer Tesla, Inc. (NASDAQ:TSLA). 

Pension fund Chairman Bob Carlson answers questions from Paul Dykewicz during an interview before social distancing became the norm after the outbreak of COVID-19.

Bob Carlson, leader of the Retirement Watch advisory service and chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets, told me his first recommendation in a “risk-off” market shift also would be gold, which he recommends through iShares Gold Trust (IAU).

“The Federal Reserve has reacted to the downturn with historic monetary stimulus, and it will continue to do that for some time,” Carlson told me. 

Chart courtesy of www.StockCharts.com

“The monetary stimulus reduces confidence in currencies and also might push inflation higher,” Carlson said. “This should be good for gold. If stock markets decline because of an economic downturn, that should also drive more investors into gold.”

As a non-gold recommendation, Carlson said he favors preferred securities.

“They should benefit from declining interest rates and a flight to safety that would accompany a risk-off period,” Carlson said. “I recommend Cohen & Steers Preferred Securities & Income (CPXCX). It is an open-end mutual fund that offers a yield higher than corporate bonds. The dividends should be safe in an economic downturn.”

Preferred security dividends also frequently have tax advantages, so that it increases the after-tax yield, Carlson continued.

Investment Radio Host Kramer Offers 5 of 14 Top Stocks to Buy in a Risk-Off Climate

To provide an effective strategy, “risk off” investing needs should be more than a short-term bias, said Hilary Kramer, host of a national radio program called “Millionaire Maker.” 

Columnist and author Paul Dykewicz interviews money manager Hilary Kramer, whose premium advisory services included 2-Day TraderIPO Edge, Turbo Trader, High Octane Tradeand Inner Circle.

“If you truly believe that the coming market storms are going to be more intense than you’re willing to tolerate, you need to eliminate some risk from your portfolio and keep it off,” advised Kramer, who leads the Value Authority and GameChangers advisory services. “ 

However, if you’re willing to ride the “random walk” down Wall Street until the rebound really revs up, there’s no reason to take “risk off,” Kramer said. The Fed has made sure that there is plenty of cash to cushion the consequences in the short term, she added.

“If you need to take risk off, park your money in investments that will generate significant income until you’re in a position to feel confident again,” Kramer counseled. “I wouldn’t head to Treasury debt here. You need to go out to 20-year bonds just to earn 1% right now and any inflationary shock will be painful. Use dividend stocks as bond replacements and do your best to lock in at least 2% or 3%.”

One of her top choices is Genuine Parts (NYSE:GPC), which pays a 3.7% dividend yield right now and is unlikely to suspend that payout for the foreseeable future.

Chart courtesy of www.StockCharts.com

A Utility and an Insurer May Bore Some Investors, But Not Kramer

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“There are also still income opportunities in utilities and the financials, where Public Service Enterprise Group (NYSE:PEG) pays nearly 4% and Old Republic International (NYSE:ORI) pays over 5%,” Kramer said. “If sentiment around the market in general deteriorates, money will flow toward stocks like these and you’ll be grateful to have locked in the income.”

Chart courtesy of www.StockCharts.com

Chart courtesy of www.StockCharts.com

However, Kramer said she suspects “wide swathes of the economy” will shake off the last of the COVID-19 shock in the next few months. If so, it does not quite reflect a risk-off scenario, if all the governors around the country cooperate and people follow the public health guidelines to reduce the risk of COVID-19 infections.

But investors still have a chance to gain growth at a reasonable price before the market starts a sustained rise later this year, Kramer said. Valuation multiples across the market have expanded but a few companies are still cheap relative to projected growth.

“Advanced Micro Devices (NYSE:AMD) justifies a 56X earnings multiple with a 60% earnings growth rate,” Kramer said. “Don’t rule out the bright spots outside the tech sector: Dollar General (NYSE:DG) only looks rich at 22X earnings until you consider that the bottom line is still on track to climb 31% this year. That’s what the market as a whole is worth right now and we’re looking for earnings on the S&P 500 to drop 25%. Given the choice, DG has an obvious appeal.”

Chart courtesy of www.StockCharts.com

Chart courtesy of www.StockCharts.com

Income-Sleuth Bryan Perry Picks 3 of the Top 14 Stocks to Buy If ‘Risk-Off’ Sentiment Returns

When it comes to risk-off trades, it becomes “very simple, very fast,” said Bryan Perry, who heads the Cash Machine, Premium Income, Quick Income Trader, Hi-Tech Trader and Breakout Profits Alert advisory services.

“Everyone has to eat, and when the budget is being squeezed, people eat at home,” Perry told me.

There are three stocks that pay attractive dividend yields and are worth accumulating if investors expect the investing landscape to transition into a highly defensive one, Perry said. The stocks he likes the best for this type of situation, and their respective dividend yields, are Kraft Heinz Co. (NASDAQ:KHC), 4.83%, General Mills (NYSE:GIS), 3.08%, and Conagra Brands Inc. (NYSE:CAG), 2.38%.

Chart courtesy of www.StockCharts.com

Chart courtesy of www.StockCharts.com

Chart courtesy of www.StockCharts.com

As three of the most diversified providers of everyday branded products that are famously familiar with all American consumers, when the going gets tough for the market, investors rotate into the kitchen and bathroom stocks, Perry counseled. A full pantry of iconic-branded foods and brands is available for the mission, he added.

Kraft Heinz Co., for example, is a recommendation in the Safe Haven portfolio of his Cash Machine investment newsletter.

Paul Dykewicz interviews investment guru Bryan Perry at the Orlando MoneyShow.

Bank of America Research Warns a ‘Risk-Off’ Move May Occur

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Research from Bank of America indicated that the economic situation now has more similarities than differences with the financial crisis of 2008 and “risk-off” trading could cause a market dip later in 2020.

A trip down memory lane to 2008 shows similarities between then and now, despite many differences. The key points:

(1) policy responses are proportional to the size of the growth shock, and aggressive policies are put in place only because the economic cost is severe; and

(2) risk appetite is worth monitoring. Market turning points coincide with a bottoming of consumer and business confidence.

The investment bank added that the market currently is focused on COVID-19 case counts, and not reacting to weaker economic data. The market is not pricing in the continued activity and sentiment shock after the COVID-19 curve apex. 

Like 2008, Bank of America predicted the market eventually will come to terms with longer-term economic costs. A sustained risk-off move would push yields down even further, according to the report.

The fallout of COVID-19 has led to 13,290,153 cases and 577,980 deaths globally, along with 3,431,574 cases and 136,466 lives lost in the United States, as of July 14. America has more than double as many cases and deaths of any other nation, including China, where COVID-19 originated.

Gov. Gavin Newsom of California is the latest among his peers to put the brakes on economic reopening and keep places such as health clubs and restaurants closed, even when wearing masks and proper social distancing could be alternative ways to avoid COVID-19 infections. If some of the expected positive developments in the economy, job growth and federal stimulus fail to occur when investors expect, a shift to risk-off assets could take place and spur asset-preservation strategies. 

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business DailyUSA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is endorsed by Joe Montana, Joe Theismann, Ara Paseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others.

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