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5 Safe Investing Zones & Their Stocks to Escape Turkish Rout

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The deepening crisis in Turkey is making investors jittery. The crisis has stemmed mainly from worries over president Tayyip Erdogan's influence over monetary policy and a worsening U.S. relationship.

Inside the Crisis

The Turkish economy is suffering a myriad woes, including double-digit inflation, inadequate currency reserves and one of the largest current-account deficits in emerging markets. Persistent concerns over economic stability and the Turkish government's lack of action to tackle the problems plaguing its economy has taken a toll on its currency.

As such, Turkish lira is in a free-fall territory, nosediving as much as 11% against the dollar in early trading today after plummeting more than 20% on Friday. With the latest slide, the lira is down around 45% against the dollar since the start of the year and has hit its lowest level since 2001.

In particular, Erdogan's preference to keep interest rates low even though inflation is more than three times the central bank's target has foiled economic conditions. The crisis intensified after U.S. sanctions over a detained American pastor and now Trump's doubling down import tariffs on steel and aluminum metals has made the situation worse.

The breakdown of Turkish lira has made it harder for Turkish companies to pay back loans they have taken in the U.S. currency. If the troubles continue, many economists have warned that Turkey could slip into a recession and the debt crisis would require a bailout from the International Monetary Fund.

The contagion has been spreading across the global market with other emerging currencies bearing the brunt of the lira's downward spiral. The South African rand hit a low level not seen since mid-2016, the Russian roble slumped again and the Indian rupee slid to an all-time trough. Investors are also fearing that the country's financial crisis could hit the European markets as well. Wall Street is also feeling the pressure with the S&P 500 logging in the worst day in six weeks and ending the index's five-week winning streak.

The events have led to risk-off trading, with lower-risk securities being in vogue. Below we have highlighted a top-ranked stock each from five such zones where investors could stash their money amid the ongoing Turkish crisis:

Low-Beta Stocks

Low-beta stocks exhibit greater levels of stability and usually lose less when the market is crumbling. Though these have lesser risks and lower returns, the stocks are considered safe and resilient.

Darden Restaurants Inc. DRI having beta of 0.18 seems a good bet in this category. Based in Orlando, FL, Darden is a restaurant company featuring a portfolio of differentiated brands that include Olive Garden, LongHorn Steakhouse, Cheddar's Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze and Eddie V's. It has expected earnings growth of 14.35% for the year (ending May 2019). The stock carries a Zacks Rank #2 (Buy) and has a VGM Score of B.

Value Stocks

Value stocks have proven to be outperformers over the long term and are less susceptible to the trending markets. These stocks have strong fundamentals - earnings, dividends, book value and cash flow - that trade below their intrinsic value. These have the potential to deliver higher returns and exhibit lower volatility compared with their growth and blend counterparts.

The Ohio-based Cleveland-Cliffs Inc. CLF is an iron ore mining company primarily in the United States. It is a supplier of iron ore pellets to the North American steel industry from the mines and pellet plants located in Michigan and Minnesota. It has a Value Score of A and estimated earnings growth of 330% for this year. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Small-Cap Stocks

Even though small-cap stocks were the victims of the Turkish upheaval, they hold up much better than the larger ones. This is because small-cap stocks have less international exposure and generate most of their revenues from the domestic market. These pint-sized stocks are less vulnerable to a trade war or any other political issue and could better insulate investors from Trump's protectionist stance.

New York-based On Deck Capital, Inc. ONDK could be an intriguing choice given its projected earnings growth of 3900% for this year. This is an online platform that uses a big data, analytic model to source, underwrite and fund loans to small businesses. The stock has a Zacks Rank #1 and VGM Score of A.

Quality Stocks

Quality investing also seeks safety and protection against volatility. Quality stocks tend to outperform as these are rich in value characteristics, with healthy balance sheets, high return on capital, low volatility, elevated margins and a track of stable or rising sales and earnings growth.

Indiana-based Cummins Inc. CMI is a global power leader which designs, manufactures, distributes, and services diesel and natural gas engines, and engine-related component products worldwide. It has a low debt/equity ratio of 0.19, five-year historical EPS growth of 7.49%, an estimated growth rate of 16.46% for sales and 24.95% for earnings this year, and a dividend yield of 3.08%. Moreover, the stock belongs to a top-ranked Zacks industry ( top 1% ), and has a Zacks Rank #2 and VGM Score of A.

Dividend Stocks

The dividend-paying securities are the major sources of consistent income for investors when returns from the equity market are at risk. This is especially true as these stocks offer the best of both the worlds - safety in the form of payouts and stability in the form of mature companies that are less volatile to the large swings in stock prices. The companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.

While there are several top-ranked options available in the space, Texas-based D.R. Horton Inc. DHI having a strong history of dividend growth seems to be a good pick. The company is engaged in the construction and sale of high-quality homes through its diverse brand portfolio that includes D.R. Horton, Emerald Homes, Express Homes and Freedom Homes. Though the yield is lower at 1.11%, the stock has five-year historical dividend growth of 30.62% and estimated earnings growth of 41.61% for the year (ending September 2018). DHI carries a Zacks Rank #1 and has a VGM Score of A.

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Cummins Inc. (CMI): Free Stock Analysis Report

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Cleveland-Cliffs Inc. (CLF): Free Stock Analysis Report

Darden Restaurants, Inc. (DRI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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