3 Stocks to Shield Your Portfolio From Market Volatility

Wall Street is breathing a sigh of relief as it seems that the worst of the “tariff tantrum” has passed. The market is now above “Liberation Day” levels, fueled by bounces in some of the most oversold stocks and a strong start to Q2 earnings season.

Not so fast…

We’re not out of the woods yet. 

In fact, we have yet to see the economic impact from tariffs, which will likely lead to higher prices and reduced economic activity due to increased uncertainty—at least in the short term.

However, some strategies continue to work in this environment. 

Among these, defensive stocks with strong balance sheets continue to outperform. These stocks’ revenues are less impacted by economic weakness or uncertainty, while their strong balance sheet ensures survival.

The Zen Ratings can help you screen for these stocks. For instance, investors can screen for stocks with an overall A or B rating, along with an A grade for Safety. 

An example of this strategy’s efficacy: I compiled a list of stocks with A or B overall ratings and an A for Safety on March 3, 2025, which is when the market started breaking lower. This group of stocks was up 2%, while the S&P 500 was down more than 7% over this period. 

More impressive is that every single stock in this group outperformed the market, and more than 75% were in the green. 

Clearly, the Zen Ratings can be an invaluable tool to help traders and investors, especially in adverse market environments. 

In today’s article, I want to discuss why the current move higher is likely to be a bear market rally rather than the resumption of the bull market — and share 3 stocks that will continue to outperform in these volatile markets. 

Bear Market Rally vs New Bull Market

Some see the recent market rebound as the start of a V-shaped rally, given that we have seen so many following market selloffs, during the previous bull market from 2009 to 2020.

 But today’s conditions are different. 

• Past V-shaped rallies had strong fiscal and monetary support — like the Fed’s aggressive actions and government spending during the pandemic — which helped markets quickly rebound. Today, policy tools are much more limited.
• V-shaped rebounds are more common in low or falling-rate environments. In high-rate periods, selloffs tend to linger (e.g., the 9-month bear market of 2022 vs. quick rebounds in late 2018 and early 2020).
• The economic, earnings, and inflationary effects of tariffs haven’t hit yet. It’s reminiscent of early 2020: growing awareness of risk, but not yet the full consequences.

The bottom line? V-shaped rallies back to new highs, following sharp selloffs, are not typical. 

More typical are multi-month periods of volatility, defined by short and sharp bear market rallies that roll over to new lows. 

3 Picks to Outperform

Given this new reality, investors need to adjust and refine their approach. 

Here are 3 stocks poised to outperform in current market conditions.

1. Leidos (LDOS) 

Leidos Holdings (LDOS) operates in segments like defense, intelligence, civil, and health markets. Its major customers are the Department of Defense, NASA, and major defense contractors. 

Like previous picks, LDOS’ revenue stream is unaffected by the tariffs. Additionally, space and high-tech defense are areas where government spending is projected to continue increasing with bipartisan agreement. 

The company’s financials are strong as evidenced by its strong balance sheet, low leverage, and attractive valuation with a forward P/E of 13. A major factor is that the company has stable government contracts, coupled with a diverse revenue stream and a nearly $40 billion backlog.

Wall Street analysts are positive on the stock. Out of 10 analysts who rate the stock, it has 5 Strong Buy ratings, 1 Buy ratings, 3 Holds, and no Sell or Strong Sell ratings. The consensus forecast is $186 which is 27% higher than the current price. 

Given these strong fundamentals, it’s not surprising that LDOS earns an A (Strong Buy) from the Zen Ratings, landing it among elite stocks with a historical 32.5% annual return since 2003, trouncing the S&P 500’s 10.8% average annual return. 

Out of a universe of more than 4,600 stocks, LDOS scores in the top 3% for Value due to its cheap valuation. This is significantly lower than its peers and the broader market at 26 and 21, respectively. It also ranks in the top 5% for Safety given its manageable debt load and strong free-cash flow generation. 

2. Lockheed Martin (LMT)

Lockheed Martin (LMT) is the world’s largest defense contractor, primarily operating in aeronautics, missiles, rotary systems, and space. Like many defense stocks, LMT sold off after President Trump’s victory on the belief that defense spending could dip. However, these fears are so far unfounded as President Trump’s defense budget is expected to show a 12% increase in spending.

In addition to its revenues being unaffected by tariffs or economic factors, the company has a robust balance sheet as evidenced by nearly $150 billion in backlogs. The company also has $2.1 billion in cash, a low debt-to-equity ratio, and a cheaper valuation than its peers. 

Wall Street analysts are bullish on the stock. The consensus forecast is $521, implying 9% upside from current prices and 11% annual earnings growth over the next 3 years. 

According to the Zen Ratings, LMT has an overall rating of B (Buy). B-rated stocks have posted average annual performance of 19.9% which outshines the S&P 500’s average annual 10.5% gain. The stock also outperforms in defensive categories, ranking in the top 3% out of all stocks for Safety in addition to B grades for Financials and Value. 

This is consistent with its strong balance sheet, wide margin of safety, and consistency in revenue, making LMT a smart and safe pick during a volatile year. 

3. US Foods Holdings (USFD)

It makes perfect sense that defensive stocks outperform during periods of uncertainty. These companies’ revenues and business models are insulated from technological disruptions or economic shocks. US Foods Holdings (USFD) is an ideal example of this type of stock as it distributes fresh, frozen, and dry goods to restaurants, hospitals, and schools. 

USFD offers a rock-solid balance sheet with low levels of debt and a strong pipeline of sales, ensuring stable cash flows. Despite its margin of safety, USFD offers growth upside to investors as earnings per share have more than doubled over the last 4 years, while analysts are looking for 41% average earnings growth over the next 3 years.

Thus, it’s not surprising to see that the stock is well-regarded by the analyst community. Out of 8 analysts who cover the stock, 7 have a Strong Buy rating. The consensus price target is $79.75 which implies 24% upside. The stock also has an overall A (Strong Buy) rating according to the Zen Ratings and ranks in the top 2% of all stocks for Safety.

USFD is also a part of the Zen Investor portfolio. Each stock in the Zen Investor portfolio is hand-picked by 40+ year market veteran Steve Reitmeister, who uses a rigorous 4-step screening process to locate the highest-potential stocks. Click here to check out other stocks in the Zen Investor portfolio. 

Conclusion

Despite the impressive and enticing bear market rally, investors should continue to play defense. 

Prioritizing stocks with strong overall ratings and high component grades in defensive categories are keys to surviving and thriving during this bear market. 

Investors who practice these principles will be well-positioned to get aggressive and take advantage, once market conditions start to turn more constructive.

What to Do Next?

• 200 Stocks to Sell Now >
• See All “A” Rated Stocks with +32.52% Average Annual Return >
• 2 New Stocks to Buy from Steve Reitmeister >

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