If You Think a Selloff Is Near, Grab Some Insurance with These 3 Stocks

Mega cap tech stocks have continued to be the key growth engine for the U.S. economy. For many young investors that started investing after the great financial crisis, this has been the way it’s been for as long as can be remembered. 

That said, the reality is that we’re living in a much higher valuation environment today than we’ve seen in many years. And it’s also true that over the very long-term, valuations will eventually revert toward some sort of equilibrium level.

Given that some of the largest companies in the world are now trading at valuations that used to be reserved for small-cap growth companies, some in the market may rightly be looking at alternative investment opportunities that can provide additional defensive exposure, in the case of a broad market selloff. Here are three such stocks I think are worth looking at right now. 

McDonald’s (MCD)

Taking a look at McDonald’s (NYSE:MCD) stock chart over most time frames, and investors will see a lumpy chart, yet one that does seem to consistently make its way up and to the right. 

McDonald’s has seen its revenue and growth slow to the low- to mid-single-digit range in recent years, as a number of key headwinds face this stock. Most importantly, McDonald’s has grown to an absolute behemoth in the world of fast food stocks. Second, the rise of GLP-1 drugs and a greater focus on dieting from this generation has investors concerned about the future growth prospects for a company that can no longer be considered a growth stock.

The thing is, the stability and consistency of McDonald’s underlying cash flow and earnings growth is really unparalleled in the market. Investors who may be pivoting from focusing on growth stocks to finding portfolio stability may be looking for companies like McDonald’s which are trading at reasonable multiples relative to their historical ranges. 

And with plenty of McDonald’s future growth lying in global markets outside of North America (with a big push into Asia still its key driver), I think these recent headwinds which have hit McDonald’s could be overblown. In a true market selloff, greater trade down could actually lead to higher growth. Thus, this is an intriguing way for investors to go against the grain right now. 

Duke Energy (DUK)

In the world of top U.S. utility companies, Duke Energy (NYSE:DUK) continues to be one of my top picks. 

The company’s future growth profile remains intact, driven by higher expecting utilization for electricity over time. We’re living in an ever-increasingly electrified world, and artificial intelligence and other technologies which rely on high amounts of computing power will certainly bolster this argument.

That said, Duke’s recent strong results have been driven mostly by new rate cases and riders, offsetting other headwinds from weather and storm related costs of late. 

Duke’s mid-teens forward price-earnings multiple is reasonable, as is the company’s 3.5% dividend yield. The combination of a strong yield in addition to a rock-solid balance sheet and the potential for growth during a market downturn make DUK stock a top option to consider for those concerned about what’s lying ahead. 

iShares 20+ Year Treasury Bond ETF (TLT)

For those investors would want the greatest amount of portfolio protection, I think adding some additional exposure to fixed income such as long-duration bonds can be helpful. 

The iShares 20+ Year Treasury Bond ETF (TLT) is the top ETF idea I have in the market right now, particularly given the fact that long duration bond yields have been higher than many investors have seen in nearly a generation. 

For those who believe that long-duration bonds are likely to trend lower over time (a function of lower growth and inflation expectations, given strong underlying demographic shifts in our economy), this is a great way to play this trend. Additional upside from the fact that long bonds represent stability for institutional investors and other foreign governments looking to shore up their currencies, and you have a perfect storm for potential price appreciation at a time when equity markets are falling.

The 60/40 portfolio (60% stocks, 40% bonds) may not be dead just yet. With more baby boomers looking to store some cash away in a safe place to be able to spend during retirement, I do think interest rates are likely headed lower, meaning bond prices are going higher in the years to come.