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For much of the longest bull run in American history, retail investors could just throw some money into index ETF's. And if they picked some big winners in the market on top of that, they could beat the market.

Even if the bull run isn't over, the days of just throwing cash into ETF's and maybe buying a few FAANG stocks are likely over. Many top economists and strategists are calling for a slowdown in the U.S. economy in 2019 and 2020, which one economist said leaves the U.S. vulnerable to external shock. Beating the market now rests on a heavy dose of stock picking.

"We wouldn't want passive exposure -- stock picking can add a lot of value," Amanda Agati, co-chief investment strategist for PNC Financial told TheStreet.

So investors that want to be defensive and pick consumer staples, healthcare, and dividend stocks may be able to protect their portfolio. But picking the best stocks in each sector, or even the best ones in general, could prove to be lucrative.

Let's start with high growth software companies.


Microsoft Corp.'s (MSFT) - Get Microsoft Corporation Report cloud business is still in high growth mode. Cloud pricing has not yet "commoditized," said David Miller, chief investment officer at Catalyst Funds, meaning that Microsoft can still charge higher prices for cloud services. That's pricing. But volumes are set to continue big increases as well, as cloud adoption is still growing. Many companies have adopted the cloud, but they can still move more of their data into it, and Microsoft has been pulling ahead in market share of late, with Inc's (AMZN) - Get Inc. Report Amazon Web Services leading in many segments.

Although Microsoft and Amazon share much of the market, which is slowing somewhat, the expected growth rate is so high that cloud revenues are set to increase, which bodes well for Microsoft Azure. Cloud revenues grew at roughly 50% year-over-year in the second quarter of 2018, according to Synergie Research Group data. So even if there's a slowdown, the growth is still high. Microsoft is trading at a forward earnings multiple of 22.5, which isn't exactly at the higher end of the business (of course, an increasingly large percent of Microsoft's business is in the cloud business).

Investors can buy Amazon for the same reason, but Amazon is in so many other businesses outside of the cloud that one has to consider as well. It has a trailing earnings multiple of 83, but a forward multiple of 42, still somewhat elevated (of course Amazon is in multiple high growth businesses).

Microsoft and Amazon are holdings in Jim Cramer's Action Alerts PLUS member club. Want to get alerted before Cramer buys or sells these stocks? Learn more now.


Adobe Inc. (ADBE) - Get Adobe Inc. Report is in the cloud business as well. And it's not priced unattractively either. Its forward earnings multiple is 26, against an expected earnings growth rate of roughly 30% in the near future. Adobe has "extremely high-powered earnings growth and revenue growth," Miller said.



(T) - Get AT&T Inc. Report

has a lot to offer, according to both Morgan Stanley analysts and the data anyone can plainly see on the telecom giant.

Morgan Stanley analysts wrote

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that the global shift to 5G should benefit the cellular service provider in the near future, in a note out in late February. And "the current attractive valuation provides support," the analysts wrote. The bank has a $37 price target on the stock, representing 24% upside from its current level. Plus, AT&T's dividend yield is above 6%, eons better than the ten year treasury's 2.7% yield. Mike Loewengart, vp of investment strategy at E*Trade said recently, dividend stocks in defensive sectors are solid picks in 2019. 

Here come some companies many people may not have heard much of before.


Heico Corp. (HEI) - Get Heico Corporation Report supplies electronics and other parts to aerospace makers. Heico has a big valuation, trading at almost 45 times trailing earnings {down from 60 in November}, but "they have a real true moat around their business at Heico," Miller said. Plus, the suppliers of aerospace makers can be valued pretty highly, as the aerospace companies will always pay up for parts they need replaced, so pricing power could be in the equation for Heico, long-term. "Once you have that part that you need replaced, you're willing to pay what you need to get that part replaced," Miller said.

Mercury Systems

Mercury Systems Inc. (MRCY) - Get Mercury Systems Inc Report is a very similar business to Heico, but it's a smaller-cap company, with a market value of $2.97 billion, compared to Heico's $11 billion. Also, Mercury mainly supplies defense contractors, a different segment of the market than what Heico supplies, so owning both of them isn't like owning two competitors, where one could cancel out the other.

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Verisk Analytics

The rub on Verisk Analytics Inc. (VRSK) - Get Verisk Analytics Inc. Report is less about the consensus on earnings potential and industry strength, but more about one key element: insider buying. Company executives and management have been buying up shares of the data analytics company, which means the people on the ground and closest to the action on the firm are saying they think the stock will do very well soon. Insiders added roughly 5,000 shares to their holding in the last few months, bringing their total position in the company to 1.17%.

"Procter and Gamble, Coca-Cola, and Pepsi," was the response from JJ Kinahan, chief market strategist at TD Ameritrade, when asked which stocks look the best for a defensive investor.

Procter & Gamble

Procter & Gamble (PG) - Get Procter & Gamble Company (The) Report  stayed in the green from November 7, the date that kick-started a downfall for U.S. stocks, to January. From November 7 to January 31, the S&P 500 fell 3.87%. But Procter & Gamble is up 5.6% in that span. It puts a volatile market to shame. It's trading at 23 times trailing earnings, which is above the average multiple for the S&P 500, but in line its main competitor, Colgate-Palmolive Co. (CL) - Get Colgate-Palmolive Company Report , which is also at 23.


Coca-Cola (KO) - Get Coca-Cola Company (The) Report , another consumer staple, was up 2.5% from November 7 to January 31. A risk with Coca-Cola is aluminum tariffs. It's not clear the 10% tariff on aluminum will get worse, but if it does, that will put cost pressure on Coca-Cola, which has already had to hike prices on products to keep its margins in shape, in turn hurting demand.


PepsiCo Inc. (PEP) - Get PepsiCo Inc. Report , of course a competitor to Coca-Cola, was down just 1% between the two dates.

All three large consumer staples, which all have consistently strong cash flow, offer nice dividend yields as well. Procter & Gamble's dividend rate is 2.91%. Coca-Cola's dividend is 3.51%, and Pepsi's is 3.89%. All of those are superior yields to the ten year treasury of 2.7%. 

Watch below: Why Procter & Gamble, Coca-Cola, Pepsico Could Belong in Your 2019 Portfolio

Fifth Third Bancorp

Fifth Third Bancorp (FITB) - Get Fifth Third Bancorp Report may have a discernible competitive advantage over other regional banks. A Morgan Stanley note said recently that management said it doesn't expect non-bank lenders to hurt its market share in 2019. Meanwhile, other regional banks may in fact face that headwind in 2019, the Morgan Stanley analysts wrote. Non-bank lenders have taken roughly 50% of mortgage loan market share since the financial crisis. Morgan Stanley raised its earnings-per-share estimate for Fifth Third for 2019 by 1.5% to $2.77. Morgan Stanley has a $32 price target on the stock, roughly 17% above its current level.

Still uncertain about 2019? TheStreet's experts break down what investors need to know.

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