The signs are everywhere, and now the stock market, which has traded sideways for the past year and a half, is looking somewhat vulnerable. The culprit? The potential for the first recession in years. A recession is a macroeconomic term that refers to a significant decline in general economic activity in a region, country or the entire world that goes on for more than a few months.

A true recession is typically visible in industrial production, employment, real income and wholesale-retail trade. The technical definition of a recession is two consecutive quarters of negative economic growth as measured by a country’s gross domestic product.

While we are a long way from two quarters of negative economic growth, the signs are increasing and becoming more ominous.

1. The inversion in the Treasury yield curve has many people saying the bond market is anticipating a recession.
2. The transports have been mauled, and freight shipments have been in a steep decline.
3. The small-cap stocks have been hammered, as typically they depend on a robust U.S. economy. Along with the transports relative to the S&P 500, both are at the lowest level since 2009.
4. Weak numbers from the Dallas Federal Reserve this week were a warning sign as well, as the Texas economy is considered one of the strongest in the nation.
5. Consumer confidence plunged to 121.5 in June from 131.3 in May, reaching the lowest reading since Sept. 2017.
6. The broad market multiples on a forward earnings basis for the rest of 2019 are way above historical norms and are also flashing a warning sign.
7. Gold has rallied to the highest levels in six years.

All this negative data comes when the overall market has had the best June since 1938, and there is a possibility that President Trump and Chinese President Xi could come to some agreement at the G-20 meeting in Osaka, Japan, this weekend. In addition, Federal Reserve Chair Powell has all but signaled that the Fed is poised to lower interest rates, and many think he will in July.

We found five stocks rated Buy at Merrill Lynch that make good sense for dangerous waters.

Agnico Eagle Mines

This is one of Wall Street’s most preferred U.S. gold producers. Agnico Eagle Mines Ltd. (NYSE: AEM) is a senior Canadian gold mining company that has produced precious metals since 1957. Its eight mines are located in Canada, Finland and Mexico, with exploration and development activities in each of these regions, as well as in the United States and Sweden.

The company and its shareholders have full exposure to gold prices due to its long-standing policy of no forward gold sales. Agnico Eagle has declared a cash dividend every year since 1983.

The Merrill team loves the stock and noted this recently:

Agnico Eagle reported that its Meliadine mine achieved commercial output in mid May 2019 ahead of schedule and under budget. Agnico Eagle has a plethora of catalysts in 2019 such as Amaruq reaching commercial output in the third quarter and moving to free-cash-flow in the third quarter. The achievement of the catalysts could lead to an upward revaluation in the company’s valuation multiple.

Shareholders receive a 1.03% dividend. Merrill Lynch has a $53 price target, while the consensus target is $51.40. The stock closed at $51.10 on Wednesday.

Altria

This maker of tobacco products offers value investors a great entry point now, and it took a hit recently as cigarette sales have slowed. Altria Group Inc. (NYSE: MO) is the parent company of Philip Morris USA (cigarettes), UST (smokeless), John Middleton (cigars), Ste. Michelle Wine Estates and Philip Morris Capital. PMUSA enjoys a 51% share of the U.S. cigarette market, led by its top cigarette brand Marlboro, one of the most valuable brands in the world.

Altria also owns over 10% of Anheuser-Busch InBev, the world’s largest brewer. In March 2008, it spun off its international cigarette business to shareholders. In December 2018, the company acquired 35% of Juul Labs.

Altria also had a mixed bag of first-quarter results, and the stock has been weak recently, offering a great entry point. Merrill noted this about the results:

Net sales for the quarter totaled $3.9 billion, -$237 million versus our forecast and led by weaker than anticipated cigarette volumes. Altria management reaffirmed its guidance for 2019 EPS to be in a range of $4.15 to $4.27 (unchanged) despite higher fuel prices.

Shareholders receive a 6.56% dividend. The $66 Merrill price target compares to the $58.73 consensus estimate. Shares last traded at $47.94.

American Electric Power

This industry-leading utility is also a solid dividend-paying company. American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.4 million customers in 11 states. It ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.

Many on Wall Street feel that the stock trades at a discount to its utility peers, and they feel it deserves a premium. Top analysts also think the company may sell generating assets and buy back shares with the proceeds, which will be accretive as well.

AEP shareholders receive a 3.00% dividend. Merrill has set a $93 price target. The consensus target is $88.31, and shares closed at $88.50.

AT&T

This solid telecom play for nervous investors resides on the Merrill Lynch US 1 List. AT&T Inc. (NYSE: T) is the largest U.S. telecom company. It provides wireless and wireline service to retail, enterprise and wholesale customers. The company’s wireless network serves approximately 124 million mobile connections with 77 million post-paid subscribers. AT&T’s traditional wireline voice business has undergone a period of secular decline due to wireless substitution and cable competition. Through its Warner Media unit, AT&T operates a diversified media and entertainment business.

The company also helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions. Trading at a very cheap 8.6 times estimated 2019 earnings, the company continues to expand its user base, and strong product introductions from smartphone vendors have not only driven traffic but increased device financing plans.

The company reported a mixed bag for first-quarter results, and Merrill said this:

On a consolidated basis, 1Q revenue, EBITDA, and EPS were all pretty much in line with consensus estimates. Entertainment EBITDA was ahead of both us and the Street, as AT&T was able to bend the cost curve and drive up video average revenue per user. Due to definitional changes, AT&T’s implied capex guidance is $20 billion and not $22 billion where the Street consensus is today.

Investors receive a 6.6% dividend. The Merrill price target for the shares is $37, and the Wall Street consensus target is $33.88. Shares ended trading on Wednesday at $32.53.

Exxon

This top Wall Street energy pick has been under pressure as oil prices have dropped dramatically. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.

Exxon also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.

For 75 years in a row, Exxon has raised its dividend (split adjusted, of course). Thanks to its vertically integrated model in the oil and gas business, its profitability doesn’t suffer through commodity price swings like a company that’s a pure play in one segment of the value chain. Earlier this spring the company raised its dividend from $0.82 to $0.87 per share. Note that Exxon has one of the highest paid American CEOs.

The dividend yield is 4.56% after the increase. The Merrill price objective is a strong $100. The consensus target is much lower at $85.19, and the stock closed at $76.60.

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These five stocks offer investors a degree of safety in a market that appears to be teetering. In addition, they pay consistent and dependable dividends, and they will be around long after the current issues are forgotten and new ones are being considered.

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