Ongoing trade tensions have kept a lot of volatility in the overall market. Recession fears are growing, and a growing number of investors are taking a more bearish outlook on the markets.
There are certainly reasons to be concerned, but for the time being the U.S. economy remains pretty solid, and the markets should stabilize if and when the U.S. and China start to make real progress on the trade war. However, the longer the war lasts, the greater the chance for a global recession which will keep investors worried.
When investors get cautious, they tend to look at stocks in their portfolio that have enjoyed strong gains and question whether or not there is additional upside or if now is the time to lock in profits and look for better value elsewhere.
The reality of the current situation is that many stocks that have been strong outperformers will continue to outperform and should be held. Having said this, after a big run up in a stock often the position has become too large and is over weighted in our portfolios.
Each of the following stocks are trading near their highs, and you may want to consider locking in some profits just in a case a recession is on the horizon, but they all have positive long-term outlooks and should continue to have a place in your portfolio.
Membership club Costco (COST) has made a strong move over the last week after its new China location opened to long lines in a huge reception in the nation. As China’s middle class grows housing spaces are enlarging and Costco looks to capitalize on that trend as bulk shopping becomes more customary. The company has grown at a rapid 10.2% per annum over the last five years and the forecast calls for additional annual growth of 9.7% for the next five years. The recent jump in the stock has pushed its valuation a little high, with shares currently trading at 36 times earnings. Don’t let the valuation scare you, Wall Street will continue to buy into the stock as the company expands its presence in the Chinese market. The retailer is a solid long-term play with a 0.9% dividend yield.
Chocolate maker Hershey (HSY) has quietly outperformed the market over the last year and the stock is currently trading just shy of its all-time high. The company has shown good earnings growth and is expected to continue growing profits a little less than 8% annually over the next five years. The company is coming off a big earnings beat at the end of July that pushed the stock higher. The company’s growth story is a big reason to keep holding the stock at its highs, and the stock also pays a 2.0% dividend. If 8% forecast growth makes you uncomfortable with the stock at its currently valuation you may consider reducing your position and rebalance the position, but the stock is a solid long term play to keep holding.
Microsoft (MSFT) has enjoyed steady gains over the last five years, with the stock now trading sideways just shy of its all-time high. The company’s latest report in mid-July was a huge beat on the top and bottom line. Microsoft has become a leader of the cloud computing space, which happens to the be the quickest growing sector in tech, and the stock has responded. Valuation is a little on the high side, but too high, with a forward P/E of 22. Analysts expect to see the company grow its earnings by 14.5% annually over the next five years, which is more than enough to justify the current valuation and allow for additional upside. MSFT is a good candidate for a rebalance in your portfolio, but the stock remains a solid hold.
Barrick Gold (GOLD)
Barrick Gold (GOLD) is trading at its all-time high and shares are up 47% in 2019. The trade war has investors turning to gold as a safe haven, and if a real recession does break out gold could be at the beginning of another strong bull run. The Fed recently cut interest rates, and there is the possibility of future rate cuts during the remainder of the year or into 2020. Lower rates are favorable to gold prices, which creates a lot of additional upside potential in gold and gold-related stocks. The stock is at 28 times future earnings, but profits are forecast to rise 24% per annum over the next five years and the longer the trade war persists the higher gold is likely to rise which could lead to even better earnings growth for the company moving forward.