The macro environment is becoming increasingly challenging for stocks, with signs of a worldwide economic deceleration in place, partly the result of trade conflicts and other geopolitical uncertainties. The sheer length of the current bull market is a matter of concern for many observers. "It's been nine years. We've gotta be nearing the end of this thing," as Andrew Slimmon, a senior portfolio manager at Morgan Stanley, told Fortune magazine.
Meanwhile, Tom Hancock, manager of the $6.8 billion GMO Quality Fund said, "We're looking for companies that we're sure are going to be survivors of a financial crisis, not that we're forecasting one." He added, "It's a long-term safety kind of view."
After consulting various investment professionals, including those quoted above, Fortune has identified 30 stocks that should outperform in 2019, whether the market is headed up or down. A previous Investopedia article looked at five stocks in that report. Here are five more:
- Compagnie de Saint-Gobain SA (CODYY): Industrial Materials
- Illumina Inc. (ILMN): Biotech and Health Care
- Melco Resorts & Entertainment Ltd. (MLCO): Gaming & Travel
- Merck & Co. Inc. (MRK): Health Care
- TD Ameritrade Holding Corp. (AMTD): Financial Services
Significance for Investors
At this late stage of the economic expansion, companies with high growth rates are becoming increasingly harder to find. Meanwhile, Fortune observes, risk-averse investors are finding that many traditional defensive stocks with high dividends now appear expensive, or have negative exposures to rising tariffs.
Compagnie de Saint-Gobain is a French construction materials conglomerate with room to grow, according to Saira Malik, head of global equities at Nuveen. The company derives only 13% of its sales in North America, and thus a slowing housing market there is of little consequence to its bottom line. Meanwhile, the European real estate industry is not hampered by rising mortgage rates, at least not yet, and half the company's sales are related to renovations, rather than new construction, she says.
Illumina has a virtual monopoly on gene sequencing machines, and is developing newer models that are faster and cheaper to use. Meanwhile, the application of genetics is becoming increasingly important in the diagnosis and treatment of disease, and also may help to reduce medical costs. "The applications of this technology might be far broader than they had thought [even as] it's getting cheaper and cheaper," says Tom Slater, head of U.S. equities at Baillie Gifford, per Fortune. Projected average annual earnings growth is about 20% over the next three to five years.
Melco Resorts, based in Hong Kong, is a casino operator. Malik observes that Chinese consumers are flush with cash right now as a result of fiscal stimulus by their government, and she believes that "Melco will outgrow the entire Macao gaming sector," as quoted by Fortune. Other things to like: a P/E of 20, a 3.6% dividend, and a share repurchase program.
Merck is an established pharmaceutical giant with a new immunotherapy treatment, Keytruda, that has all the makings of a blockbuster, according to Marc Pinto, a portfolio manager at Janus Henderson. The company seems poised to win FDA approvals for its use against a variety of cancers, which Pinto believes will help beat back pressures to lower its price while also increasing the number of patients taking it. He also likes the 3% dividend.
TD Ameritrade is a leading online discount securities brokerage, and Pinto notes that its profitability is rising along with interest rates. He also observes that its acquisition of Scottrade is adding value, and expects more mergers in the future.
While Fortune bills its list of 30 stocks as top choices for 2019, whether bull or bear market conditions prevail, investors should be aware that it always is difficult for individual stocks to buck the tide of unfavorable economic or market conditions. In particular, the trade and tariff conflicts of 2018 are far from resolved, and there is a strong possibility that they may worsen in 2019.
Nuveen's Malik admits that China "is right in the eye of the storm when it comes to trade talks," and GMO Quality Fund's Hancock is avoiding companies based in mainland China for that very reason. Meanwhile, eurozone economic growth is now at its slowest pace since 2014, Trading Economics reports, which clouds the picture for Saint-Gobain.