Although the new year seemingly got off to an encouragingly robust start, recent data suggests that investors should target viable stocks to buy for a slowing economy. At first, such a notion seems odd, particularly in light of the blowout jobs report for Jan. However, this dynamic also implies that more dollars chase after fewer goods – an inflationary scenario that the Federal Reserve hates.
Unfortunately, then, policymakers at the central bank may decide to get more aggressive with interest rate hikes. Adding to the woes is China’s recent economic reopening. While long term, the development should represent a net positive for global commerce, it also implies increased commercial activity. And this in turn suggests greater resource consumption, leading to greater demand (i.e. higher prices).
Therefore, it’s imperative that investors at least consider stocks to buy that can respond effectively to a slowing economy. Fortunately, this list of relatively sedate names each carries consensus analyst price targets implying double-digit percentage growth. So, who said boring companies can’t deliver the goods? Below are seven stocks to buy primed for a slowing economy.
|PG||Procter & Gamble||$139.28|
Stocks to Buy: General Mills (GIS)
Fundamentally, the narrative for General Mills (NYSE:GIS) as one of the stocks to buy for a slowing economy sells itself. Essentially, the company ranks favorably near the bottom of the trade-down effect. In other words, consumers facing financial pressures will trade down their purchases of goods and services until reaching an acceptable price-to-quality equilibrium.
Therefore, if you go much cheaper than General Mills products, then circumstances have really gone dire. So, GIS stock should hold up relatively well (unless you expect apocalyptic scenarios to materialize).
Financially, General Mills represents a fairly valued business with stable (albeit middling) revenue growth. However, on the bottom line, the company posts a trailing-year net margin of 15%, ranking higher than 89% of the industry. Turning to Wall Street, GIS carries a consensus moderate buy view. However, analysts’ average price target stands at $85.31, implying an 11.5% upside growth potential.
Stocks to Buy: McDonald’s (MCD)
While McDonald’s (NYSE:MCD) technically operates under the broader consumer discretionary label – you don’t need to eat at McDonald’s nor arguably should you – it also represents one of the stocks to buy for a slowing economy. Mainly, people need a blow-off valve for daily stresses. And the Golden Arches provides relatively cheap comfort food, a perfect alternative to pricier alternatives.
On the financial front, MCD represents generally a fairly valued investment. Objectively, the market prices MCD at a forward multiple of 25.37, ranking a tad higher than the industry median. Nevertheless, the company posted a three-year revenue growth rate of 3.8%, higher than 75.62% of sector peers. Also, the fast food giant commands a net margin of 26.65%. That’s better than over 97% of its rivals, thus truly dominating the segment.
Unsurprisingly, Wall Street analysts peg MCD as a consensus strong buy. Further, their average price target stands at $294.22, implying an upside growth potential of over 10%.
Stocks to Buy: Coca-Cola (KO)
Along with McDonald’s, Coca-Cola (NYSE:KO) ranks among the most iconic American brands. Indeed, it’s become a symbol of western-style capitalism. Regarding stocks to buy for a slowing economy, Coca-Cola provides a cheap pick-me-up. Here, the company also benefits from the trade-down effect of more expensive fares such as Starbucks (NASDAQ:SBUX).
I’m not picking on Starbucks because I’m mildly addicted to the coffee shop. However, let’s be real: if you want a caffeine boost, picking up a six-pack of Coke provides an exponentially greater discount.
To be fair, retail investors may not be getting a compelling bargain with KO stock. Currently, Gurufocus.com’s proprietary calculations for fair market value indicate that Coca-Cola represents a fairly valued investment. However, astute market participants will probably enjoy the underlying stability. Both the company’s long-term revenue growth rate and trailing-year net margin pings better than their respective industry median values. Finally, Wall Street analysts peg KO as a consensus strong buy. Their average price target stands at $67, implying an upside potential of almost 11%.
Procter & Gamble (PG)
Under most circumstances, Procter & Gamble (NYSE:PG) wouldn’t register as a particularly sexy example of stocks to buy. However, ahead of a potential economic slowdown, PG offers a reasonably solid avenue to park one’s money. After all, its products – as boring as they may be – never go out of style. Even under financial duress, people find a way to take care of themselves, boding well for the consumer goods giant.
Again, from a valuation perspective, we’re not talking about anything truly remarkable. Presently, Gurufocus.com rates PG as a fairly valued investment. Objectively, if we’re being honest, PG hits a little “warm” in terms of valuation against trailing and forward earnings. However, it’s a stable business. For instance, its three-year EBITDA growth rate pings at 31.2%, ranking better than over 82% of the competition. Also, it features an outstanding return on equity of 31.7%.
Right now, Wall Street analysts peg PG as a consensus moderate buy. Moreover, their average price target stands at $155.92, implying an upside growth potential of over 11%.
Dominion Energy (D)
When faced with troubling economic circumstances, investors should focus their attention on stocks to buy in the utility sector. Fundamentally, companies like Dominion Energy (NYSE:D) enjoy a natural monopoly. These firms feature massive footprints and high barriers to entry. As well, Dominion provides electric utilities in states like Virginia, North Carolina, and Connecticut.
Particularly when talking about North Carolina, the state represents a top migration destination for millennials. Therefore, Dominion operates where the money will be moving to.
Financially, Dominion could use some work, especially on the balance sheet. Also, Gurufocus.com warns that it could be a possible value trap. However, Dominion doesn’t feature glaringly poor financials relative to the industry. Moreover, speculators will be targeting D stock’s forward multiple of 13.66. As a discount to earnings, Dominion ranks better than 65.25% of the industry. Back to Wall Street, covering analysts peg D stock as a consensus hold. However, their average price target stands at $67.27, implying nearly 15% growth potential.
Dollar General (DG)
Cynically, Dollar General (NYSE:DG) is another example of a stock to buy that really sells itself ahead of potential economic troubles. As a discount retailer, Dollar General commands round-the-clock relevance. You don’t need to be in a bear market to enjoy some basement-bargain prices on essential goods. However, during rough times, consumer desperation rises, making DG relevant.
Again, it’s an undeniably cynical perspective. However, with opportunities possibly limited this year in the capital markets, you gotta take what you can.
Financially, Gurufocus.com’s proprietary FMV calculations consider DG as a modestly undervalued investment. Also, the investment resource’s discounted cash flow (DCF) analysis confirms the same. Operationally, Dollar General is just as enticing if not more so. Its three-year revenue growth rate pings at 14.6%, ranking better than 87% of its peers. Also, its net margin of 6.49% is outstanding for the sector. Finally, Wall Street analysts peg DG as a consensus moderate buy. Their average price target stands at $264.93, implying an upside potential of 13.45%.
As a major supermarket operator, Kroger (NYSE:KR) will likely always be relevant so long as humans need food and water. Obviously, this circumstance includes both bull and bear market cycles. However, during economic downturns, people need to watch their expenditures. Presumably, the easiest way for households to accomplish this task is to cut dining out and cook food at home.
Again, Kroger benefits from the trade-down effect. It also benefits because not too many competitors exist below its value chain. Thus, KR offers a compelling idea for stocks to buy.
On the fiscal front, Gurufocus.com notes that Kroger represents a fairly valued investment. However, on an objective basis, KR trades at a forward multiple of 10.67. As a discount to earnings, Kroger ranks better than 84.75% of the competition. Also, on a DCF basis, KR rates as undervalued; indeed, it’s approaching what analysts would consider significantly undervalued.
Lastly, covering analysts peg KR as a consensus moderate buy. Their average price target stands at $52.57, implying an upside potential of over 17%.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.