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3 Stocks to Buy in a “Risk-Off” Market

The bottom line here is that it can really pay off to gain an understanding of the best areas of the market to be in during a “risk-off” period. That’…

July
16, 2021

5 min read

This story originally appeared on MarketBeat

With the current declining market breadth and high beta areas of the market like biotech and growth stocks taking a major downturn, it’s clear that sentiment has shifted towards “risk-off” over the past few trading sessions. While it’s hard to determine whether or not this marks a trend change in the overall market, it’s clear that volatility might be a factor in our investment decisions for the near term. Whenever this type of shift occurs, money starts to find its way towards more conservative stocks that aren’t as susceptible to sharp market downturns. The current relative strength in the consumer staples, utilities, and health care sectors is confirmation that riskier areas of the market might be losing steam. The bottom line here is that it can really pay off to gain an understanding of the best areas of the market to be in during a “risk-off” period. That’s why we’ve put together a brief overview of 3 stocks to buy in a “risk-off” market so that you can either protect your capital or profit as more investors move into conservative securities. Let’s take a deeper look below. Coca-Cola (NYSE: KO) It’s easy to tell when investors start making moves that can protect their portfolios against risk when you see consumer staples stocks like Coca-Cola rallying, which is exactly the case at the moment. The stock is up over 4% during the last week and could be a smart buy given how strong PepsiCo’s recent earnings were. It’s worth noting that PepsiCo saw a big rebound in revenue since people are heading out to restaurants, stadiums, and public places again, which bodes well for Coca-Cola’s Q2 earnings release next week. There’s also a lot to like about this company’s defensive properties, as Coca-Cola produces products that see steady demand regardless of what is going on with the economy. The company distributes its products in over 200 different countries and owns iconic brands like Coca-Cola, Diet Coke, Sprite, Fanta, VitaminWater, PowerAde, and Minute Maid. Coca-Cola has undergone several important changes during the pandemic that should benefit the company in a big way going forward, including improving its digital capabilities. Finally, the fact that Coca-Cola is a dividend aristocrat with a 2.99% dividend yield makes it a clear winner amidst market volatility. American Water Works (NYSE:AWK) Another strong stock to consider buying in a “risk-off” market is American Water Works. It’s a water and wastewater utility company that offers its services to residential, commercial, industrial, and other customers. What’s attractive about utility companies like American Water Works is that people need their services during all business cycle phases. With so many questions marks about inflation, the economic recovery, and market sentiment at this time, adding shares of the most geographically diverse publicly traded water and wastewater utility company in the U.S. makes a lot of sense. This stock is also a nice pick at this time thanks to its history of dividend growth, as the company has rewarded long-term investors with a 10% dividend growth rate (CAGR) over the last 5 years. The stock currently offers a 1.48% dividend yield and is a solid choice for conservative income-oriented investors. Finally, the fact that commercial and industrial customers should generate more revenue for the company this year as they reopen following the pandemic makes this a utility stock poised for outperformance. Invesco S&P 500 Low Volatility ETF (NYSEARCA:SPLV) Another tell-tale sign that the market is in “risk-off” mode is the fact that the Invesco S&P 500 Low Volatility ETF is breaking out to new all-time highs. It’s a great option for investors who want to put some money to work in more conservative areas of the market, but don’t want to select individual stocks. This ETF consists of the 100 securities from the S&P 500 Index with the lowest realized volatility over the last 12 months, which means you can gain diversified exposure to the exact sectors of the market that are seeing strong inflows at this time. Some of the ETF’s top holdings include reliable consumer staples like Colgate-Palmolive, PepsiCo, and Procter & Gamble, health care giants like Johnson & Johnson, Bristol-Myers Squibb, and Merck & Co, and utility stocks like American Water Works, Duke Energy, and Consolidated Edison. The ETF also offers a dividend yield of 1.62% at this time. Whether you are looking to profit from the short-term “risk-off” sentiment in the market or you simply want an ETF that can offer equity exposure without a lot of volatility, the Invesco S&P 500 Low Volatility ETF should absolutely be on your radar.Featured Article: Options Trading – What is a Straddle?

Buy McDonald’s as It’s Likely to Go Much Higher

After being range-bound for about five months, McDonald’s (NYSE:MCD) stock broke to the upside in a big way in March 2021. The stock has flattened in…

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Money-Smart Solopreneur

This book gives you the essential guide for easy-to-follow tips and strategies to create more financial success.

July
16, 2021

4 min read

This story originally appeared on MarketBeat

After being range-bound for about five months, McDonald’s (NYSE:MCD) stock broke to the upside in a big way in March 2021. The stock has flattened in the last month but it’s still close to its all-time high. With a new earnings report on the horizon, it’s time for investors to decide whether to take a bite. 
My advice is to buy first and ask questions later. McDonald’s flexed its strength during the pandemic. Consider that 2020 revenue was down “only” 8% from 2019. And the company’s 2021 first-quarter revenue was higher than both 2020 and 2019.  
Naysayers will point out that earnings did not fare as well as revenue. The $6.05 EPS McDonald’s posted for 2020 was 22.9% lower than the $7.85 EPS it delivered in 2019. However, that was largely due to its second-quarter posting of 66 cents per share. This was the first full quarter into the pandemic. Earnings have rebounded nicely since then. And in the first quarter of 2021, earnings were on par with 2020 and higher than 2019. 
Investing In Their Employees 
McDonald’s employs 800,000 people which makes it an economic indicator in and of itself. I joke of course, but there is a sense that as goes the Golden Arches so goes the economy. So with McDonald’s announcing it is raising wages from $11 to $17, that’s a big deal.  
If raising wages is only a starting point. McDonald’s is also expanding benefits to include a combination of payments for education, child care, and eldercare.  
You can question what this means for the broader economy or society. But if you’re an investor this is good news. If McDonald’s becomes a potential career option as opposed to a part-time job, it will radically change the perception of what is largely still viewed as a gig job.  
But won’t that raise operating costs? Maybe in the short term. But even with pandemic restrictions easing some franchise owners are finding it difficult to boost staff to open dining rooms. And the larger question is why would they? In small-town America where I live, our McDonald’s frequently has long drive-in lines particularly for the breakfast rush and when school lets out.  
Plus, McDonald’s continues to invest in technology. Even prior to the pandemic in-store kiosks and a mobile app were changing the perception if not the actual dining experience. With the prevalence of food delivery services, the reality is that many individuals want fast food to come to them.  
Familiar Food Leads to Predictable Revenue 
One of the frequent arguments I hear against owning McDonald’s stock is the quality of the food. This has been an argument that, like many faux arguments, has been around for more than 30 years. A related argument says that individuals will be unwilling to pay more for “fast food.” 
However, when a company generates as much revenue as McDonald’s does despite an endless number of competitors threatening to take its market share, at some point you have to find different arguments.  
I’m not here to argue that eating McDonald’s is part of a balanced diet. Nor am I advocating paying $10 or more for a value meal. I personally don’t eat at McDonald’s very much because I’m older and don’t have the metabolism I once had.  
But I’m only pointing out that what individuals say they’re going to do and what they actually do frequently don’t match up. People are still eating at McDonald’s even if they hate themselves for doing so. 
As an investor this means, as the pandemic showed, that you can count on McDonald’s for predictable revenue and predictable profits.  
McDonald’s is a Dividend Darling 
If you needed one more reason to buy McDonald’s, it’s never a bad idea to remind you that that the company is a Dividend Aristocrat. It has increased its dividend for 45 years and it’s unlikely that streak will end anytime soon.  
The consensus price target of 28 analysts is for MCD stock to go to $250. However, recent analyst price targets have the stock going significantly higher. That should give you an idea about where earnings are headed. Which may be the only reason you need.Featured Article: What is Depreciation?

Analysts Love Delta Air Lines and You Should As Well

Shares of Delta Air Lines (NYSE:DAL) are up nearly 4% in mid-morning trading. This means that the stock has recovered all the losses it sustained afte…

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Money-Smart Solopreneur

This book gives you the essential guide for easy-to-follow tips and strategies to create more financial success.

July
16, 2021

4 min read

This story originally appeared on MarketBeat

Shares of Delta Air Lines (NYSE:DAL) are up nearly 4% in mid-morning trading. This means that the stock has recovered all the losses it sustained after reporting what was broadly seen as a solid earnings report.  
One reason why Delta’s report received a muted reaction was that the headline number (I.e. the company posting a profit) was due to the payroll aid the airline received from the federal government. When those funds were stripped away, the company was still operating at a loss, a fact the airline does not dispute. 
However, things change fast in the market these days. And so it is that DAL stock is moving higher based on an upgrade from Raymond James. The firm moved Delta up two levels from Market Perform to Strong Buy and gave the stock a $58 price target. That puts it at roughly where it closed 2019.  
The significance of that price target would seem obvious. According to Delta CEO Ed Bastian, the company is projecting revenue to be approximately 30% to 35% below 2019 levels by the end of this year.  
The Picture is Getting Clearer  
For much of the last 15 months, anyone that was trying to analyze the airline industry was doing so without data. We were all assuming and, in some cases, just assuming things had to get better. In mid-April, I made a bullish call on DAL stock. At the time, the number of vaccinations was rising and Covid-19 cases were falling.  
But the stock has actually dropped a bit since I made that call. Some of that is because vaccinations are rapidly plateauing in the United States. And this is happening as the Delta variant of the novel coronavirus is causing positive cases to rise in some areas. 
However, as Delta’s earnings report shows us, the recovery is happening. According to Delta CEO Ed Bastian, consumer travel is back to pre-pandemic levels. And forward bookings show that Americans are planning to travel. But as anyone that follows the airline industry knows, the real story will be whether business travel returns.  
When asked, Bastain was optimistic about the return of business travel. According to the company’s internal research, it’s possible that 75% of business travel may be back within a couple of years.  
What Could Cause Turbulence? 
If I have any caution about DAL stock it’s simply a concern about the stock going too high, too fast. I think the stock is correctly valued today based on current revenue. And I also believe that the 12-month price target from Raymond James is also likely to be accurate.  
But that assumes that everything goes perfectly. As Delta CEO Ed Bastain acknowledged on the earnings call, the company is still losing money. That should change. However, the company is prioritizing shoring up its balance sheet. Down the road they will likely reinstate its dividend which it suspended in 2020. And based on the analysts’ questions on the conference call, there will be some pressure to increase wages.  
Which leads to another point. By Bastian’s own admission, the company is not fully staffed yet. And although he expects that it will be in the next few months, that assumes that everything goes perfectly. 
Candor Leads to Credibility 
Throughout the pandemic, I gave Delta management high marks for candor. And I’m not alone in that assessment. That’s why it’s easier for me to take Bastian’s word for it when he says he doesn’t believe the Delta variant will significantly impact operations. And despite the obstacles that Delta needs to work through, travel hesitancy – or outright restrictions – are the only thing that will prevent traffic numbers from rising.  
That credibility confirms my bullish outlook. DAL Stock has been lagging the broader market. But if you’re a long-term investor, snapping up shares at their current price will look like a bargain in another year.  Featured Article: What is the Quick Ratio?