The U.S. economy is certainly showing some signs of slowing, raising questions about which stocks to buy for slowing U.S. growth. According to the household survey of the May employment report, the number of people with jobs dropped by 408,000 last month. Further, the unemployment rate rose to 4% for the first time since January 2022 and the labor force participation rate dropped by 0.2 of a percentage point. Also in May, the Institute for Supply Management’s manufacturing purchasing managers index (PMI) came in at 48.7.
PMI readings below 50 indicate that the sector being measured is contracting. And as I pointed out in a previous article, the housing sector, which is an important sector of the U.S. economy, appears to be poised to contract. Also importantly, consumers are reducing the amount that they spend on goods, while lower-end consumers are generally in bad shape, USA Today reported on June 10. For investors who want to protect their portfolios from the impact of the decelerating economy, here are three stocks to buy for slowing U.S. growth.
Eaton (ETN)
Bank of America recently named electrical-components maker Eaton (NYSE:ETN) as one of the top 19 beneficiaries of the electrification of the economy. Among the trends that will create large increases in the demand for electricity are the proliferation of AI and data centers, the bank noted. Given the huge cash reserves of many firms driving the latter trends, including Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) these developments are unlikely to falter from slowing economic growth. Moreover, very few people cut back a great deal on electricity usage during economic downturns, so the utilities that buy Eaton’s equipment will not curtail their spending plans if economic growth slows a great deal. The imperviousness of Eaton’s customers to economic slowdowns makes it one of the best stocks to buy for slowing U.S. growth.
Also importantly, the firm is benefiting significantly from high government spending on infrastructure, along with various tax breaks and chip-manufacturing subsidies implemented by Washington in recent years.
In the first quarter, Eaton’s operating cash flow soared 42% versus the same period a year earlier to $475 million. Also impressively, the backlog of its electrical business jumped 27% year-over-year as of the end of Q1, while it raised its revenue growth guidance, excluding the impact of acquisitions, to 7%-9% from 6.5%-8.5%.
NextEra Energy (NEE)
Like Eaton, NextEra (NYSE:NEE) seems very well-positioned to benefit from large increases in electricity demand going forward. NextEra owns the nation’s largest electric utility and sells large amounts of renewable energy.
Utilities are widely expected to get a sizeable boost from the electrification of the economy. Moreover, many data center owners rely primarily on renewable energy.
Likely because of these strong, positive catalysts, NextEra is one of eight utility stocks upon which Goldman Sachs has bestowed “buy” ratings. Like me, Goldman views utilities as having “Defensive” characteristics and believes that the utility sector is an effective play on the proliferation of AI.
Investor’s Business Daily gives NEE stock a very high Composite Rating of 92, along with an Accumulation/Distribution grade of A. The latter rating indicates that many large institutional investors have been buying significant amounts of NEE stock over the last 13 weeks.
NEE stock has a relatively low forward price-earnings ratio of 22 times.
Netflix (NFLX)
I believe that Netflix (NASDAQ:NFLX) will be rather resilient to slowing economic growth. That’s because Netflix is a very cheap form of entertainment, and a recession would likely accelerate the cord-cutting trend. The latter development, in turn, would cause the growth of Netflix’s subscriber base and ad revenue to meaningfully accelerate.
Meanwhile, after conducting a survey of Netflix users late last month, investment bank Evercore ISI wrote that the satisfaction levels of the company’s users have increased by five percentage points versus the previous quarter to 61%. And well-known Evercore analyst Mark Mahaney, who met with the company’s management, believes that “Netflix is in the strongest position financially, fundamentally and competitively that we have ever seen.” The bank reiterated an “outperform” rating on the shares.
Additionally, I believe that Netflix can benefit financially from its inclusion in multi-channel bundles. Recently, for example, Comcast (NYSE:CMCSA) included the company in a bundle with Peacock and Apple’s (NASDAQ:AAPL) Apple TV.
On the date of publication, Larry Ramer held a long position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
