One thing is clear: Investors need a backup plan in 2019. With the markets frothy and investors concerned about the Brexit, U.S. and Chinese trade relations, and a potential crisis in Venezuela and Iran, volatility in the markets is the new norm.
In times of growing uncertainty, investors may choose to buy "defensive stocks."
Choosing the best defensive stocks can be difficult. But at Money Morning, we've developed a single tool to identify not just the best defensive companies, but also ones that are poised to push higher in 2019. Not only do these stocks have double-digit upside - they also offer investors strong dividend payments.
The system tracks the 1,500 most profitable companies on the market and assigns each one a VQScore. To get the score, we use only the key factors that find stocks ready to far outperform "average" returns.
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A stock's VQScore is derived from a blended analysis of a company's underlying earnings power, its profit growth, and its EPS acceleration or deceleration. Then we balance the result against recent demand for the company's shares.
And when you add it all up, you have a tool that can help you find the best breakout stocks for the future.
Today, we dive into the three defensive stocks to buy in 2019...
The Best Defensive Stocks to Buy in 2019, No. 3
The first stock on today's list is Dollar Tree Inc. (NASDAQ: DLTR).
In times of economic downturn, Americans aren't going to stop going to grocery stores and convenience shops. Even though you can "click and buy" on many e-commerce sites, people will visit brick-and-mortar shops if they believe they can save money.
This beaten-down stock has nothing wrong with it aside from the challenges it has endured since taking over rival Family Dollar three years ago. It is currently working on renovating those stores and should continue to grow its bottom line through the balance of 2019.
The stock currently has our highest VQScore, signaling it's ready to break out and beyond its 52-week high of $108.83.
However, UBS analyst Michael Lasser projects that the stock will hit $143 per share. That figure represents an upside of 44.1%.
The Best Defensive Stocks to Buy in 2019, No. 2
The second stock we have today is Senior Housing Properties Trust (NYSE: SNH).
If you are looking for an industry with no shortage of demand, look no further than senior living facilities. And if you're looking for a breakout stock with a robust dividend, then your pick should be Senior Housing Properties Trust.
The company has a rock-solid history of paying dividends in a cash-rich business. This healthcare REIT owns 443 properties across the United States. It generates rental income from medical offices, senior housing, and managed senior housing properties.
Americans may cut down on shopping, travel, and luxury goods during a recession, but they will always pay for healthcare. That's especially true in a country where Baby Boomers continue to retire at a breakneck pace.
In the next 20 years, senior housing demand could surge thanks to a big increase in the number of Americans living past the age of 85.
Now, this investment does have some risks due to its credit rating (the lowest possible for investment grade), leverage, and interest-rate hikes.
But the company pays a whopping dividend of 10.97% and is relatively cheap compared to its sector rivals. The stock trades at a price to tangible book value of 1.46, which is roughly half of the sector average, according to Reuters. The stock also has a Beta of just 0.47, which makes it less risky in times of market volatility.
The stock also has our highest VQScore...
The Best Defensive Stocks to Buy in 2019, No. 1
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Finally, we have PPL Corp. (NYSE: PPL).
When it comes to protecting your money, it’s smart to focus on the "can't miss" trends outlined by Chief Investment Strategist Keith Fitz-Gerald. If you’re looking for growth and income, the utilities sector provides steady cash flows, strong dividends, and a source of constant demand.
As populations grow, so too does the demand for electricity. PPL is a regulated utility giant headquartered in Allentown, Pa. The firm delivers power to nearly 11 million customers across Kentucky, Virginia, Pennsylvania, and… Great Britain.
PPL has one of the best rankings for grid efficiency of any electric utility in the United States (currently ranked 6 out of 93). Its strong management recently raised its dividend for the 19th consecutive year, and this appears to be a firm on pace to hit 25 years and become a Dividend Aristocrat.
PPL currently has a dividend of 5.25% and trades at an attractive price/earnings ratio of 12.18. The stock’s price to cash flow sits at 9.57, below the industry average of 10.23.
Now, the downside risk is that the company carries a lot of debt. However, maturing debt in the coming years is spread out enough to resolve fears about the company’s cash. And while concerns about the Brexit exist for any firm that has exposure to this geopolitical uncertainty, no one plans to shut the lights off across the Atlantic Ocean.
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.