Wall Street was a winner’s circle this quarter. The market surged on hopes that the US economy and corporate profits would keep growing and that the Federal Reserve wasn’t about to hike interest rates.
The Dow is up more than 11% this year while the S&P 500 and Nasdaq have surged 13% and 16.5% respectively. It’s a stunning reversal from the doom and gloom fears that were pervasive in the fourth quarter of last year.
Tech stocks a safe haven in ‘earnings drought’
Tech stocks should continue to do well, because profits could keep growing at a time when investors are worried about a potential “earnings drought” for other sectors, said Daniel Morgan, senior portfolio manager with Synovus Trust Company.
He thinks investors need to be cautious and not make bets just on FAANG. He said companies with significant exposure to cloud computing will probably outperform the rest of tech.
“There are pockets of strength in tech,” Morgan said, adding that he likes Amazon (thanks to its AWS business), Microsoft (MSFT), Salesforce (CRM) and HR cloud software firm Workday (WDAY) more than techs with a bigger focus on consumer spending and advertising.
But not everyone enjoyed 2019’s early rebound. Even though it was pretty hard to lose money in the first three months of 2019, 47 companies in the S&P 500 were in the red for the year as of Thursday’s market close. Several are very familiar names.
Changing consumer behavior hurting retail and staples companies
Look closely and you’ll find that many of these market losers share some things in common. They all have been hurt by the rise of Amazon, Walmart (WMT) and other giant retailers like Target (TGT) and Costco (COST), as well as a shift in consumer tastes.
Concerns about the retail competitive landscape have clearly hurt CVS, Kroger and Macy’s. Shares of Walgreens (WBA), Nordstrom (JWN), Coach owner Tapestry (TPR) and Gap (GPS) have also missed out on the market rally this year.
And the move towards healthier eating has been bad news for Kraft Heinz as well as market laggards Coca-Cola (KO).
The problems plaguing Kraft Heinz and Coke are also a contributing factor in the drop in price of Warren Buffett’s Berkshire Hathaway (BRKB) as well.
Berkshire Hathaway is the largest shareholder in Kraft Heinz and Coke. Buffett’s firm also owns Dairy Queen and See’s Candies.
Playing defense with dividends
Still, some investors think that investors should be looking more closely at boring, defensive consumer companies, especially with fears rising about a global economic slowdown eventually leading to sluggishness in the United States.
Mike Morey, chief investment officer at Integrity Viking Funds, said investors should be looking for safety. And that means companies that pay solid dividends which can hold up better if the economy does lose steam.
Morey told CNN Business his firm owns Procter & Gamble (PG), which he dubbed as a recession proof stock. He also likes tobacco company Altria (MO), pointing to the company’s recent investments in vaping giant Juul as well as cannabis company Cronos (CRON).
He even likes some tech stocks too, but only the ones that are financially healthy enough to pay dividends. Morey said his funds own IBM (IBM) and chip companies Broadcom (AVGO) and Texas Instruments (TXN).
“This is a stock picker’s market. And dividend payers should outperform,” Morey said.