Daily Gains Letter

Top Stocks to Consider Right Now: Defensive and Dividend-Paying Stocks

By for Daily Gains Letter |

Dividend paying stocksSuccess in the stock market is all about balancing risk and reward. Too much risk and you leave yourself vulnerable to added downside when the stock market turns, as may be the case at this time. However, too little risk and you don’t fully partake in the upside moves of the stock market, though your downside risk is lessened. The key is to understand the stock market we are in and alter your investment strategy accordingly.

Prior to the flush in the stock market on Wednesday, technology growth and small-cap stocks were leading the broader market higher this year. Yet as we also witnessed, the higher-beta stocks were also vulnerable to added selling on Wednesday.

What happened on Wednesday (and what happens on other down days, too) indicates what could happen to higher-beta stocks during a stock market sell-off.

While the stock market seems to want to go higher, there’s also a sense of hesitancy surfacing that will likely make gains much more difficult to come by this year. This is the time when you want to review your portfolio and determine the associated risk. If you have made some pretty good profits with higher-beta stocks, you may want to shift some capital from these higher-risk momentum stocks to lower-risk, low-beta stocks.

This is probably not the time to pick up stocks like Google Inc. (NASDAQ/GOOG), The Priceline Group Inc. (NASDAQ/PCLN), Netflix, Inc. (NASDAQ/NFLX), and Twitter, Inc. (NASDAQ/TWTR).

What you should be looking at are some of the large-cap cyclical stocks that trade with the economy and jobs. Instead of technology, here we have sectors such as automotives, furniture, retail, travel, and restaurants.

Take a look at the chart below, which illustrates the Consumer Discretionary Select Sector bottoming in 2009.

Consumer discretionary Select sector

Chart courtesy of www.StockCharts.com

Should the economy turn downward, investors may want to look at the defensive sector—those companies that make everyday-use products, such as toothpaste, toilet paper, soap, shampoo, and the like.

The chart of the Consumer Staples Select Sector below shows the strong uptrend in the defensive sector since 2009.

Consumer staple select sector

Chart courtesy of www.StockCharts.com

Here you will find companies like those Warren Buffett favors, including companies like Kimberly-Clark Corporation (NYSE/KMB), The Travelers Companies, Inc. (NYSE/TRV), CVS Health Corporation (NYSE/CVS), and The Clorox Company (NYSE/CLX). Yes, the businesses are boring, but the long-term charts show steady growth over time.

The bottom line is this: at this time, investors can’t go wrong considering and researching defensive and conservative dividend-paying stocks.

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