Economic growth is showing signs of a slowdown because of inflation and the continued impact of the Delta variant.
Investors should focus on these two factors contributing to what Bret Jensen dubs as “Stagflation Lite" since they are the issues causing the major recent declines in consumer sentiment and confidence.
The stock market appears to have “ignored these warning signs about a slowing economy,” he wrote in a recent Real Money column.
Investment banks are also expressing the same sentiment about the future of the economy. Goldman Sachs (GS Get Goldman Sachs Group, Inc. (GS) Report lowered its estimate of third quarter GDP growth twice in the last three weeks and predicts it to rise only by 5.5%, compared to its previous estimate of 8.5% a few weeks ago. Morgan Stanley (MS Get Morgan Stanley (MS) Report lowered its estimate by over 50% to 2.9% GDP growth from 6.5% in the third quarter.
These revisions in growth estimates could be opportunities to invest in two stocks - Hooker Furniture (HOFT Get Hooker Furniture Corporation Report and homebuilder M.D.C. Holdings (MDC Get M.D.C. Holdings, Inc. Report, according to Jensen
“Both names are plays on the continued migration out of the large cities to the smaller towns and exurbs, where the cost of living is lower,” Jensen wrote. “A trend that will strengthen, in my view, if more regions of the country impose vaccine mandates and travel restrictions.”
These stocks could be a good addition to a portfolio because they both trade at under 10 times earnings and generate “impressive growth and good order backlogs” along with solid balance sheets and pay decent quarterly dividends, he wrote.
“They are two of the cheaper stocks in what I consider an overvalued market and should hold up well should we get a market correction, which I believe is an increasing possibility in the months ahead,” Jensen wrote. “Despite my pessimism on the market, when the music is playing you have to dance. I have chosen a slow waltz, keeping my eyes firmly on the exits."
