Apple is No. 2 on Wells Fargo's 'downside protection picks' list

“We believe it is time to move up in quality and down in risk” -- Analyst Christopher Harvey

From Tanaya Macheel's "Wells Fargo says the probability of a correction is rising, so hide out in these quality stocks" posted Monday on CNBC Pro:

Wells Fargo has highlighted several stocks that could offer investors some protection should the market experience a significant correction, which the firm expects to happen by the end of the summer.

The firm sees the probability of a roughly 10% market slump increasing and expects a “healthy repricing” of risk as rising froth and decelerating growth lead to more instability, Christopher Harvey, Wells Fargo Securities senior equity analyst, said in a Dec. 20 note...

Each stock has an overweight rating by Wells Fargo analysts, a market cap of more than $3 billion, and “favorable” quality, which is based on debt to EBITDA (or earnings before interest, taxes, depreciation and amortization), profit margins and return on equity.

“We believe it is time to move up in quality and down in risk,” Harvey said. “The Fed has turned hawkish; we are seeing pricing fatigue; growth is decelerating; market froth is abundant; and risk-averse options are relatively cheap but limited... so expect pressure on multiples.”

Cue the list:

My take: Good to be high up on a list like when the Street smells a correction. Note that the Dow today fell -1.23% and Apple -0.81%.

12 Comments

  1. Robert Paul Leitao said:
    Economic growth will decelerate from the stimulus-induced pace of growth, the Fed has begun to taper its QE purchases and interest rates are likely, absent a recession, to begin a multi-year cycle of measured increases due to Fed policy changes. However, several large/mega cap enterprises are likely to increase dividends and initiate/continue share repurchase programs. It’s time to be very selective on equities investments. Apple continues to repurchase shares in huge volumes on a quarterly basis and the dividend may continue rise between 5% and 8% per annum. Dividend paying equities are among the best inflation hedges available to the investing public.

    4
    December 20, 2021
  2. bas flik said:
    it will be difficult for governments to increase interest rates. they are indebted in a way you can never unwind this anymore. they are forced to keep on borrowing. they crossed the point of no return. low interest rates are there to stay untill the system collapses. and at this point only AAPL can save you.

    1
    December 20, 2021
    • John Konopka said:
      Why would that be? The US dollar is a fiat currency. The government can produce dollars at will. Also, it seems that increasing interest rates makes treasuries more desirable. I don’t see the US government having trouble borrowing.

      1
      December 20, 2021
      • Robert Paul Leitao said:
        It will take years for interest rates to be normalized on any kind of historical basis. There’s only one practical way for inflation pressures to be eased outside of a recession. The Fed is taking cautious and deliberate steps to end QE and reduce the massive amounts of liquidity flooding the economy. On any historical basis, lax monetary policies will continue for the next few years. The issue is the opportunity cost for equities investors. Somehow, of course, we will survive and tens of millions of Americans will continue to thrive.

        2
        December 20, 2021
      • Mordechai Beizer said:
        The problem is that interest payments on the debt will crowd out other government spending. The US can’t afford to pay the interest at anything other than nominal rates, there’s too much debt. You get into a vicious spiral. In order to maintain spending while paying more interest, the US will need to go further into debt unless taxes go up a lot more.

        1
        December 20, 2021
        • Robert Paul Leitao said:
          @Mordechai That’s correct. It’s among the reasons it will take the Fed years to increase interest rates to a normalized level. It’s an economic balancing act. Politically it’s very difficult to raise taxes and collectively the American people don’t have the political will to pay more in taxes. Currently about 50% of wage earners pay no net income tax while millions among that large bloc of wage earners benefit from the EIC and other anti-poverty initiatives administered through the tax code. So on the personal side of the tax equation, more than 100% of personal net tax receipts are paid by the other 50% of taxpayers. It’s very hard to raise taxes when personal income taxes are already on a progressive scale.

          1
          December 20, 2021
      • Mark Visnic said:
        @John “The [US] government can produce dollars at will.”

        It can until it can’t John. Sovereigns can lose reserve currency status. The UK did in the 20th century and it has been in a downward spiral from that point. The US likely is not in any danger in the short term but, depending on profligate spending and debt status and government protections of the rule of law, we might not enjoy that status in the longer term.

        6
        December 20, 2021
        • Robert Paul Leitao said:
          Thank you, Mark! Yours are wise words of caution.

          2
          December 20, 2021
  3. bas flik said:
    USA is printing money, EU is printing money, China is probably printing money. Russia is insignificant. Africa? South America? nowhere to hide. Only AAPL will do.
    ,

    1
    December 20, 2021
    • John Butt said:
      The brakes have been put on in NZ and the foot is above the brakepad in Australia, both countries where the epidemic has been less harmful so the economies are more resilient. I dont know others, but I suspect those countries where Covid management was successful are also looking at or applying brakes.
      Interestingly the NZ exchange rate is falling relative to the US, the exact opposite of what I would expect in the current situation. Great for AAPL shares though.

      0
      December 20, 2021

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