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Forbes.com: 5 Stocks to Avoid in a Recession

Forbes.com: 5 Stocks to Avoid in a Recession

Wednesday, 27 November 2019 10:58 AM

Savvy investors should always have a disaster plan in place. What to do and buy, and most importantly: what to stay away from and what to sell. 

The risk of a recession is rising, and the main threat to the economy is the Trump administration’s trade war, according to a survey released last month by the National Association for Business Economics.

“The rise in protectionism, pervasive trade policy uncertainty, and slower global growth are considered key downside risks to U.S. economic activity,” said NABE survey chairman Gregory Daco, chief U.S. economist, Oxford Economics.

Four in 5 of the 54 NABE economists surveyed said the economy is at risk of slowing further, up from the 60% who said so in June. In their latest survey, NABE panelists said they expect real gross domestic product will continue to expand at an average rate of 2.3% this year but will slow to 1.8% in 2020, CNBC.com explained. That’s weaker than the group’s last forecast in June.

When the next recession arrives, Forbes.com recently suggested five stocks you don’t want to own.

“In four out of five cases debt is the big red flag. To be fair, there’s plenty of companies you might not want to own in a recession, but among the S&P 500, these stuck out,” Forbes explained.

  1. Molson Coors (TAP). “Sales are flat, and nothing about a beer company should be flat. Worse, debt is growing. As part of the acquisition of MillerCoors in parts during 2015 and 2016, debt ballooned to nearly $12 billion from $2.6 billion. Since then management has done good job whittling down the total to about $8.6 billion,” Forbes said.
  2. Sprint (S).  Forbes explained that "it is hard to know which outcome is more terrifying: Sprint completing its merger with T-Mobile or failing to complete its merger with T-Mobile." 
  3. CenturyLink (CTL). At approximately 6.6%, CenturyLink has a huge dividend, but not because earnings and cashflow have been growing. "Rather the share price has been falling. CenturyLink cut its dividend in February from 54 cents per quarter to 25 cents," Forbes said.
  4. Campbell’s Soup (CPB). "Consumer staples such thie iconic soup maker as tend to be popular recession plays. After all with a can of Campbell’s infamous tomato soup costing just $0.98 at Wal-Mart, they’re likely to fly off the shelf during a recession," Forbes said. "But Campbell’s is a much more complicated story than soup and shows some vulnerabilities that would not put it at the top of your shopping list during a recession."
  5. General Mills (GIS). "The maker of  household icon brands such as Cheerios, Pillsbury, Betty Crocker, Häagen-Dazs among others has had trouble generating much growth. Projected fiscal 2020 sales of $17.35 billion would represent 2.9% year-over-year growth from FY19, but that’s still lower than revenues from five years ago," Forbes said. Goldman Sachs analyst Jason English, who downgraded GIS to a sell summed up the situation noting General Mills was experiencing “mounting deceleration.”

Meanwhile, former Federal Reserve Chair Janet Yellen warned that increasing economic risks threaten to eventually push the U.S. into another recession.

She said while the U.S. economy is in “excellent” shape one of the most prominent risks is wealth disparities, which she said are “extremely disruptive.”

In a downturn, the Fed would have little room to move, due to low rates, she added.

Yellen also said tariffs the U.S. has leveled on Chinese imports aren’t doing any good.

“I would bet that there would not be a recession in the coming year. But I would have to say that the odds of a recession are higher than normal and at a level that frankly I am not comfortable with,” Yellen said at the World Business Forum, CNBC reported.

With three rate cuts this year, there remains “not as much scope as I would like to see for the Fed to be able to respond to that. So there is good reason to worry,” she said.

The U.S. economy has slowed but remains relatively solid. Uncertainty over the country’s trade policy has dented business investment and chilled global growth. But consumers are still spending, helped by a tight labor market where the lowest unemployment level in nearly 50 years is gradually lifting wages.

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When the next recession arrives, Forbes.com recently suggested five stocks you don’t want to own.
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Wednesday, 27 November 2019 10:58 AM
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