Market Correction in 2018? Hedge Funds Say You Should Own These 5 Stocks

After a 2017 that was one of the least volatile years on the stock market in decades, 2018 looks primed to make up for that lack of spunk and then some. Volatility as measured by the VIX index has jumped considerably in the last week as rumblings of a large market correction began picking up steam and that resulted in a massive selloff starting last Friday that saw the S&P lose nearly 200 points in two trading days, while the Dow lost nearly 2,000 points.

While Wells Fargo believes the worst is already behind us and that stocks could rebound by 10% throughout the rest of the year, other pundits are calling for yet more declines and as much as a 15-20% correction in 2018. In this article, we’ll look at five stocks that are beloved by the most successful hedge funds in the world, and which could be promising picks to outperform the market in 2018 should a notable correction indeed be in the cards for the U.S stock market.

At Insider Monkey, we track insider trading and hedge fund activity to uncover actionable patterns and profit from them. We track over 600 of the most successful hedge funds ever in our database and identify only their best stock picks. Hedge funds are like many other companies in that they bundle products (in this case, stock picks) together and sell them to customers (investors) as a package deal. That means you get their 73rd-best pick along with their best pick, and who wants to pay exorbitant fees for a fund’s 73rd-best idea when you could instead invest in only their best ideas? Our newest stock picks will be released later this month, which investors can gain access to by becoming a subscriber to Insider Monkey’s premium newsletters.

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McDonald’s Corporation (NYSE:MCD)

McDonald’s Corporation (NYSE:MCD) was one of the few stocks that didn’t get battered during the 2008 financial crisis, posting gains of 9% while the broader market lost over half of its value. McDonald’s is capable of having the same type of growth spurt today should tough market conditions persist thanks to its revamped value menu, which reports indicate has been very popular since launch. McDonald’s has pulled back by 10% during the past week, creating a promising entry point for buyers.

McDonald’s Corporation (NYSE:MCD) was owned by 60 of the hedge funds that Insider Monkey tracks on September 30, an increase from 57 three months earlier. It was also owned by nine billionaire investors, including Ken Griffin, a self-professed lover of McDonald’s. Griffin’s firm, Citadel Investment Management, owned 2.62 million McDonald’s Corporation (NYSE:MCD) shares on September 30.

Johnson & Johnson (NYSE:JNJ)

Johnson & Johnson (NYSE:JNJ) has an enviable stable of consumer goods products and OTC and prescription drugs, including Tylenol, Sudafed, Nicorette, Aveeno, Darzalex, and Imbruvica. Johnson & Johnson is also one of the most reliable dividend stocks one can find, with the company having raised its dividend for over 50 years running, through markets good and bad. Johnson & Johnson (NYSE:JNJ) was owned by 75 hedge funds in our system at the end of September, ranking it as the 26th-most popular stock among them.

Johnson & Johnson (NYSE:JNJ) shares are down by 15% over the past two weeks, creating an intriguing buying opportunity, as investors have worried over the potential damages that could result from a lawsuit filed against the company that alleges that it knowingly sold baby powder which contained asbestos fibers. A California woman was awarded $417 million last year in a lawsuit against Johnson & Johnson which alleged that she got ovarian cancer due to using talcum powder for 50 years. The award was later thrown out. Even should Johnson & Johnson not be as fortunate in the newest case, analysts believe any potential damages would be manageable for the company.

On the next page we’ll look at three more stocks hedgies like that could outperform the market should there be a correction in 2018.

Facebook Inc (NASDAQ:FB)

Facebook Inc (NASDAQ:FB) has lost 10% of its value in February, opening up a buying opportunity for those who aren’t worried about the effect that the Jim Carrey boycott will have on the company and its stock (said entirely tongue-in-cheek, but then again, stranger things have happened). Carrey recently called on everyone to delete their Facebook accounts and sell off their stock, as he has, stating that the company profited from Russian interference during the 2016 Presidential elections and hasn’t done enough since to prevent it from happening again.

That niggling issue aside, Facebook Inc (NASDAQ:FB) is another stock that should do well regardless of the broader market conditions, so long as the social media giant continues to churn out impressive financial results. Investors will be closely monitoring the company’s next financial report to see what impact Facebook’s changes to its news feed have had on its user engagement. Facebook is the current darling of the hedge fund industry, with 156 funds owning the stock at the end of September, nearly 20 more than any other stock.

Barrick Gold Corp (USA) (NYSE:ABX)

When things go bad on the stock market, the opposite tends to be the case for gold, which is often turned to as the safest place to store one’s capital. That in turn also makes gold stocks a safer place to store one’s capital during times of turmoil in the world, when fire and brimstone rain down or some tweet makes everyone lose their collective shit.

Analysis by CNBC at the end of January showed that even short-term volatility like the 5-day period we just experienced resulted in notable immediate gains for safe-haven investments like gold and bonds. With cryptocurrencies like bitcoin currently going through some fire and brimstone of their own, gold may benefit doubly from volatility in other investments. Barrick Gold Corp (USA) (NYSE:ABX) is the gold stock that is the most trusted among the investors in our database, 34 of which own $709 million worth of shares of the company as of September 30.

Wal-Mart Stores, Inc. (NYSE:WMT)

No matter the state of the stock market or economy, Wal-Mart Stores, Inc. (NYSE:WMT) is going to continue to rack up hundreds of billions of dollars in revenue. During the 2008 financial crisis, Walmart improved its revenue and earnings throughout that year and its stock gained close to 20% while the S&P 500 lost 37%. Walmart continues to make a hard push into Amazon.com, Inc. (NASDAQ:AMZN)’s online turf, with a recent report stating that the company is moving to purchase a minority stake in Flipkart that would value the Indian e-commerce company at $20 billion.

Wal-Mart Stores, Inc. (NYSE:WMT)  is owned by 52 hedge funds in our database, which includes billionaire Ken Fisher’s $860 million stake in the company. Fisher has previously lauded Walmart for being “highly efficient and productive despite the fact that it is the globe’s largest non-governmental employer.”

Disclosure: None