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3 Safe Stocks to Buy as the Economic Recovery Loses Momentum

There’s growing concern that the economic recovery could falter this winter if Covid-19 cases spike dramatically. Those concerns are not just being felt…

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This article was originally published by Investor Place

There’s growing concern that the economic recovery could falter this winter if Covid-19 cases spike dramatically. Those concerns are not just being felt in the U.S. but all over the world, leaving investors to start hunting for safe stocks to buy.

The Organization for Economic Co-operation and Development (OECD) recently lowered its growth forecast for the U.S. economy in 2021 to 6% from the 6.9% it had estimated in the spring and trimmed its forecast for global economic growth to 5.7% from 5.8% previously.

At the same time, other influential institutions ranging from the International Monetary Fund to the European Central Bank continue to sound the alarm on issues likely to impact the global economy, from rising inflation and loose monetary stimulus to supply constraints and the ongoing shortage of semiconductors.

With concerns rising that the economic recovery is losing momentum, we look at three of the best safe stocks to buy now.

  • Berkshire Hathaway (NYSE:BRK.B)
  • Costco (NASDAQ:COST)
  • Amazon (NASDAQ:AMZN)

Safe Stocks to Buy: Berkshire Hathaway (BRK.B)

Source: Jonathan Weiss / Shutterstock.com

The holding company of legendary investor Warren Buffett is one of the most stable and reliable investments around. In good times and bad, Berkshire Hathaway manages to provide consistent and steady returns to shareholders. You’ll want to own the more affordable Class B shares though as the Class A stock is currently trading at more than $430,000 per share (Buffett has never split the stock). At $286 a share, the Class B shares are affordable and profitable. In the past five years, BRK.B stock has gained 98% in value. In the past 25 years, the shares have risen 1,085%.

And while Berkshire Hathaway’s stock does not pay a dividend, they are a great long-term investment for investors young and old. As a holding company, Berkshire owns a range of well-known businesses — from the Dairy Queen restaurant chain to Geico insurance and the Fruit of the Loom clothing company.

Berkshire Hathaway also has a vast and well diversified portfolio of blue-chip stock holdings. The company is one of the largest shareholders of Apple (NASDAQ:AAPL), Coca-Cola (NYSE:KO) and Bank of America (NYSE:BAC). Berkshire’s stock holdings are currently worth more than $325 billion and growing. BRK.B is a buy and hold forever stock.

Costco (COST)

A Costco Wholesale (COST) warehouse in Auburn Hills, Michigan.Source: ilzesgimene / Shutterstock.com

No matter what happens with the economy, people will still need to eat. And when it comes to groceries, Costco is king. Stock of the popular warehouse club has risen 28% over the last six months and is up 220% in the past five years. COST stock has continued to trend higher throughout the pandemic. Covid-19 variants and lockdown measures come and go, but Costco’s share price keeps on rising.

And Wall Street remains bullish, with a median price target on the stock of $500, implying a further 11% gain from current levels. Speculation is growing that Costco’s stock could split before year’s end as it continues to reach new highs.

Costco, which today has just over 800 store locations around the world, continues to post impressive financial results and growth metrics.  For all of 2020, Costco’s total sales grew 7.7% from a year earlier, while its e-commerce or online sales rose 50% over the previous year. The company’s membership renewal rate is also the envy of the retailing world at 89% globally.

The average purchase made by a Costco member increased by nearly 6% in the last 12 months. Bottom line is that Costco is the gold standard when it comes to grocery retailers. In uncertain times, COST stock is a bedrock investment that people can count on.

Safe Stocks to Buy: Amazon (AMZN)

Amazon (amzn) LOGO ON THE SIDE OF A BUILDING.Source: Sundry Photography / Shutterstock.com

If we find ourselves back in widespread lockdowns and the economy tanks, investors will want to own stock of online retail behemoth Amazon. In many ways, Amazon has been the company that carried us through the pandemic. With brick-and-mortar retailers forced to close, the world turned to Amazon for online orders ranging from toilet paper to laptop computers.

There’s literally nothing people can’t get online from Amazon today, and the company continues to aggressively expand around the world, adding new warehouses and employees, as well as experimenting with new technologies such as drone deliveries and electric delivery trucks.

The good news is that Amazon stock is on sale right now. Up just 3% in the last six months, AMZN stock is now trading at $3,435. The Seattle-based company’s share price has cooled off after a red-hot gain of 83% in 2020. But it likely won’t be long before the share price stops moving sideways and has another leg higher.

The 45 analysts who cover Amazon forecast that the stock will gain at least 20% over the next year and rise to $4,105. The lowest estimate on the stock is currently $3,775, which would be 10% above where the shares are currently sitting. Should something unexpected happen and we all be forced online again, Amazon stock could move even higher.

On the date of publication, Joel Baglole 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.

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Author: Joel Baglole

Economics

Markets stay booster’ed

Equities rally continues US markets managed to maintain omicron is weak, buy everything rally overnight, albeit at a much less frenzied pace than the day…

Equities rally continues

US markets managed to maintain omicron is weak, buy everything rally overnight, albeit at a much less frenzied pace than the day before. That sits nicely with my V for Volatility outlook for December and readers should not be fooled into thinking the risks of whipsaw price have now disappeared. I’ll say it again, volatility will be the winner in December, not directional plays.

Having said that, I am not calling for the end of days for the 21-month stock market rally, merely that we can now expect a lot more two-way volatility going forward. A case in point is the Nasdaq, which has once again bounced off its mighty March 2020 trendline support and will probably be a classical technical analysis case study for years to come. Here’s what CFD from OANDA looks like, the actual physical chart is even sexier, and I’ll leave readers to draw the lines on that one themselves.

 

Another sign that we may need to wait for next week’s FOMC meeting to climb aboard the taper trade again comes from currency and bond markets. The Australian dollar, the risk sentiment indicator to rule them all, rallied powerfully overnight. Even the euro managed to recover, and the US dollar generally had a tough day at the office. That came as US 10-year yields rose back above 1.50% to 1.53%.

The divergence in price action is a warning sign for tomorrow night’s US CPI. It suggests that the street is positioned for a “risk-off” taper move. With the US 10-year rising around 20 basis points over the last few sessions, reversing recent losses, there may not be much juice in the tank at a 7.0% CPI print. Quid pro quo, US dollar selling and equity buying hint that a 7.0% CPI is increasingly priced in. We likely need to see a print much higher than 7.0% to revive the taper trade in the near term and it wouldn’t surprise me if an on-expectation CPI release sees US yields fall, the US dollar fall, and equities jump once again. Remember what I said about V for Volatility and whipsaw price action?

Helping things along, although with a gentler market impact, were comments from Pfizer and Moderna suggesting a third shoot would do the job against omicron. Given that the US and Europe can’t even get 65% of their populations to have even two shots, let alone a third, we can assume two things. Omicron will yet have a role to play in surging cases over the winter, and vaccine hoarding by rich countries will continue until 35% of their populations stop taking advice from social media and saying me, me, me, instead of we, we, we. That means that the poor in the rest of the world will be waiting longer, thus allowing a higher chance of more nasty variants to arise. And thus, the cycle continues, sigh…

Today’s data calendar in Asia is thin. New Zealand Manufacturing Sales in Q3 fell a dismal 6.20%, suffering from the Auckland Covid lockdown hangover. You can’t buy anything in New Zealand these days anyway; it’s either too expensive thanks to the RBNZ, or there’s none of it left thanks to Covid-19. The New Zealand dollar continues to underperform its Australian cousin, thanks to being another 2,250 kilometers (1,400 statute miles for non-decimal dinosaurs) east of Australia, and the RBNZ hitting the W for Wimp button at its last policy meeting.

On a brighter note, Japan’s Large Manufacturing Index QoQ for Q4 outperformed, rising by 7.90%. Some Q3 baseline effects are in there, but overall, it bodes well for next week’s Tankan survey and suggests that Japan is recovering after it Q3 delta wave. Services may have a more difficult time as the country shut its borders to Johnny Foreigner again this month.

China’s Inflation data has proved benign as well, giving regional markets a small sigh of relief. YoY Inflation for November rose to 2.30% (2.50% exp), while MoM Inflation rose by 0.40% (0.70% exp), giving markets a nil-all draw. That should provide more relief to local equity markets which despite the bad news pouring in from the property developer space this week, is taking their pleas for debt restructuring as meaning the government will facilitate “something.” At least Kaisa suspended trading of their stock in Hong Kong, I’m surprised Evergrande still is. A debt restructuring is not usually good for stock prices, even if they have already fallen by 90%.

The rest of the day’s calendar globally is second-tier. Some regional inflation measures from Europe and Germany’s Balance of Trade. The focus will be on US Initial Jobless Claim with markets hoping for sub-200k prints to resume. Overnight, US Jolts Job Openings for October jumped to 11 million unfilled jobs. That doesn’t really compute with US Non-Farms falling to 210,000, or even a Household Survey suggesting 1.1 million jobs, or unemployment falling to 4.20% with a 61.80% participation rate.

The Federal Reserve may have shot itself in the foot with its unlimited free money we’ll backstop the dumbest investment decisions monetary stimulus which should have been a short term “shock and awe,” and not a monetary Vietnam. Macroeconomics is a beautiful thing when the orchestra all plays in tune, but too often, sticking your finger in one leak sees another pop up nearby. By enriching substantially, any American who owns a home, crypto, a meme or any other stock, they have created a situation where people don’t have to go back to work or have retired. The inflation trade may waver this week, but don’t put it to bed just yet. If James Bond can return from his most diverse and politically correct movie ever (the end credits said he would), inflation sure can as well.







Author: Jeffrey Halley

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Economics

FT-IGM US Macroeconomists Survey for December

The FT-IGM US Macroeconomists survey is out (it was conducted over the weekend). The results are summarized here, and an FT article here (gated). Here’s…

The FT-IGM US Macroeconomists survey is out (it was conducted over the weekend). The results are summarized here, and an FT article here (gated). Here’s some of the results.

For GDP, assuming Q4 is as predicted in the November Survey of Professional Forecasters, we have the following picture.

Figure 1: GDP (black), potential GDP (gray), November Survey of Professional Forecasters (red), November SPF subtracting 1.5ppts in Q1, 05ppts in Q2 (blue), FT-IGM December survey (sky blue squares), all on log scale. FT-IGM GDP level assumes 2021Q4 growth rate equals SPF November forecast. NBER defined recession dates peak-to-trough shaded gray. Source: BEA 2021Q3 2nd release, Philadelphia Fed November SPF, FT-IGM December survey, and author’s calculations.

In the figure above, I’ve used the SPF forecast of 4.6% SAAR in 2021Q4; the Atlanta Fed’s nowcast as of yesterday (12/7) was 8.6% SAAR. A new nowcast comes out tomorrow.

Interestingly, q4/q4 median forecasted growth equals that implied by the Survey of Professional Forecasters November survey (which was taken nearly a month before news of the omicron variant came out).

The q4/q4 forecast distribution for 2022 is skewed, with the 90th percentile at 5% growth, the 10th percentile at 2.5%, and median at 3.5%. I show the corresponding implied levels of GDP (once again assuming 2021Q4 growth equals the SPF ).

Figure 2: GDP (black), November Survey of Professional Forecasters (red), FT-IGM December survey (sky blue squares), 90th percentile and 10th percentile implied levels (light blue +), my median forecast (green triangle), all on log scale. FT-IGM GDP level assumes 2021Q4 growth rate equals SPF November forecast. NBER defined recession dates peak-to-trough shaded gray. Source: BEA 2021Q3 2nd release, Philadelphia Fed November SPF, FT-IGM December survey, and author’s calculations.

On unemployment, the median forecast is for a deceleration in recovery,

Figure 3: Unemployment rate (black), November Survey of Professional Forecasters (red), FT-IGM December survey (sky blue square), 90th percentile and 10th percentile implied levels (light blue +), my median forecast (green triangle). NBER defined recession dates peak-to-trough shaded gray. Source: BEA 2021Q3 2nd release, Philadelphia Fed November SPF, FT-IGM December survey, and author’s calculations.

The survey respondents also think that the participation rate will take a long time to return to pre-pandemic levels.

Source: FT-IGM, December 2021 survey.

On inflation, the median is higher than the November SPF mean estimate for 2022 of 2.3% (and Goldman Sachs’ current estimate).

Source: FT-IGM, December 2021 survey.

The entire survey results are here.


Author: Menzie Chinn

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Economics

FT-IGM Survey for December

The FT-IGM survey is out (it was conducted over the weekend). The results are summarized here, and an FT article here (gated). Here’s some of the results….

The FT-IGM survey is out (it was conducted over the weekend). The results are summarized here, and an FT article here (gated). Here’s some of the results.

For GDP, assuming Q4 is as predicted in the November Survey of Professional Forecasters, we have the following picture.

Figure 1: GDP (black), potential GDP (gray), November Survey of Professional Forecasters (red), November SPF subtracting 1.5ppts in Q1, 05ppts in Q2 (teal), FT-IGM December survey (teal squares), all on log scale. FT-IGM GDP level assumes 2021Q4 growth rate equals SPF November forecast. NBER defined recession dates peak-to-trough shaded gray. Source: BEA 2021Q3 2nd release, Philadelphia Fed November SPF, FT-IGM December survey, and author’s calculations.

In the figure above, I’ve used the SPF forecast of 4.6% SAAR in 2021Q4; the Atlanta Fed’s nowcast as of yesterday (12/7) was 8.6% SAAR. A new nowcast comes out tomorrow.

Interestingly, q4/q4 median forecasted growth equals that implied by the Survey of Professional Forecasters November survey (which was taken nearly a month before news of the omicron variant came out).

The q4/q4 forecast distribution for 2022 is skewed, with the 90th percentile at 5% growth, the 10th percentile at 2.5%, and median at 3.5%. I show the corresponding implied levels of GDP (once again assuming 2021Q4 growth equals the SPF ).

Figure 2: GDP (black), November Survey of Professional Forecasters (red), FT-IGM December survey (teal squares), 90th percentile and 10tth percentile implied levels (blue +), my median forecast (green triangle), all on log scale. FT-IGM GDP level assumes 2021Q4 growth rate equals SPF November forecast. NBER defined recession dates peak-to-trough shaded gray. Source: BEA 2021Q3 2nd release, Philadelphia Fed November SPF, FT-IGM December survey, and author’s calculations.

On unemployment, the median forecast is for a deceleration in recovery,

Figure 3: Unemployment rate (black), November Survey of Professional Forecasters (red), FT-IGM December survey (teal square), 90th percentile and 10th percentile implied levels (blue +), my median forecast (green triangle). NBER defined recession dates peak-to-trough shaded gray. Source: BEA 2021Q3 2nd release, Philadelphia Fed November SPF, FT-IGM December survey, and author’s calculations.

The survey respondents also think that the participation rate will take a long time to return to pre-pandemic levels.

Source: FT-IGM, December 2021 survey.

On inflation, the median is higher than the November SPF mean estimate for 2022 of 2.3% (and Goldman Sachs’ current estimate).

Source: FT-IGM, December 2021 survey.

The entire survey results are here.


Author: Menzie Chinn

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