The US economy could slow down. Here’s what I’d do

Syringe and vial on blue background

So far, the US economy seems to be doing quite well. But I think we may have to brace ourselves for slower than anticipated growth in the near future. Investment bank Goldman Sachs, has just cut its US economy forecast to 6% this year from 6.4% earlier. This is based on a larger than expected impact of the Delta variant. 

Now, even 6% growth is not bad. Also, this number is only for the US. So why am I taking note of this? The reason is that if there is a rising incidence of the pandemic’s sub-trend in other parts of the world too, forecasts could be slashed elsewhere. So far the forecast reduction is not drastic, but then who is to say what will happen in the future? Also, given the size of the US economy, it impacts the rest of the world to such a high degree. So if it slows down, it would be bad news for pretty much everyone.

What I’d buy now

In this case, I would focus on defensive stocks that can be safe havens if stock markets are rocked by softer than expected US growth. That means stocks that have resilient demand, irrespective of the state of the economy. 

One example of a FTSE 100 defensive stock I like is healthcare biggie AstraZeneca (LSE: AZN), which I also hold in my portfolio already. It needs no introduction, of course, not after its Covid vaccine was developed. But besides manufacturing the vaccine, the Anglo-Swedish pharmaceuticals multinational boasts other notable positives too. 

The case for AstraZeneca

It specialises in cancer treatments, which have been growing their markets. It is a financially healthy company that expects to continue performing well in the foreseeable future. I see this as a key reason for its share price usually bouncing back even after setbacks. 

It suffered one in the second half of last year as stock markets turned bullish. Investors probably got nervous after it announced the acquisition of US-based Alexion, tplus here were doubts about its Covid-19 vaccine and then there was a disagreement with the European Union on the distribution of said vaccines. The effect on its share price was visible until early this year, though it has made a fair bit of a recovery since. It even pays a dividend. 

The upshot

Its price-to-earnings (P/E) ratio is pretty high at 42 times, but in the time that I have covered the stock, I have never seen it being particularly low. I think investors just expect to pay a premium for a company whose earnings are strong and demand for whose products is resilient. Since its earnings forecasts look good, the stock could continue to rise even now, I believe. And this will be even more so if bearishness returns to the markets. It is a buy for me. 

The post The US economy could slow down. Here’s what I’d do appeared first on The Motley Fool UK.

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Manika Premsingh owns shares of AstraZeneca. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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