The market has been soaring lately. Every dip has been a buying opportunity. And for growth and technology stocks in particular, there’s no price or valuation that seems too high. So, now might seem like a weird time to focus on safe stocks to buy.
But this is actually a great opportunity to add defensive names to your portfolio. The old Warren Buffett adage goes like this: you should be greedy when others are fearful and fearful when others are greedy. Heading into 2021, the latter applies: everyone else is greedy, so it’s the occasion for caution.
We don’t know what may cause the next stock market correction. However, there are plenty of possible dangers out there, including political unrest, the weak state of the global economy, persistent unemployment and ongoing disruption from the novel coronavirus. As such, you should consider buying something a little more sure. So, take a look at these seven safe stocks for your portfolio:
Verizon (VZ) is as good as it gets when it comes to safe stocks. The company sells a vital service to consumers and therefore holds up even during recessions. It’s also one of only a few major cell phone service providers out there, ensuring that VZ has strong pricing power. In fact, if you don’t like Verizon, your options for rival carriers are quite limited.
For example, Verizon has a safer balance sheet and better management than its chief rival AT&T (T). While AT&T has engaged in risky empire-building as it goes into the media business, Verizon has given shareholders a steadier ride.
VZ stock is trading for just about 13x trailing and 11x forward earnings right now. That’s cheap, particularly in this market. The stock also offers a generous 4.55% dividend yield. Additionally, Verizon’s shares are actually down roughly 8% over the past 12 months, which puts it in stark contrast with the overall market. While this name is on a bit of a dip, that gives investors a good chance to pick up a safe position at a fine entry point.
If you’re seeking safe stocks, consumer staples are a great hunting ground. The sector is full of companies that produce everyday essential goods. These sorts of stocks tend to outperform in bear markets and are vital to protecting your downside.
Kimberly-Clark (KMB) is a great example of this — few goods are more vital than toilet paper. Who can forget all the folks stockpiling TP just last year? Plus, the company makes a ton of other sanitary essentials, such as diapers and cleaning products.
KMB stock spiked last year during the height of the pandemic. Not only did demand for its goods rise, but you also had folks buying up blue chip names. In a topsy-turvy market, Kimberly-Clark was a needed source of stability.
Now, though, that urge has disappeared. Most traders would rather focus on exciting technology plays at the moment. In a market where special purpose acquisition companies (SPACs) often go up 20% in a week, the prospect of making 20% in a year through owning KMB might not be so tantalizing.
Still, investors may come back to Kimberly-Clark stock soon. The company just beat on earnings a few days ago and hiked its dividend up by 6.5% as well. It now has a yield of 3.29%.
In terms of safe stocks to buy, Hormel Foods (HRL) goes along the same lines as Kimberly-Clark. It makes a wide array of foods, with a particular focus on proteins. And although the company is probably known best for its SPAM, that doesn’t fairly represent its portfolio of brands. In fact, Hormel has one of the most millennial-friendly product lines — it sells organic meats, plant-based “meats,” guacamoles, salsas, nut butters and more.
Hormel has a net cash position, making it invulnerable to short-term financial panics or liquidity squeezes. Very few food and beverage companies operate without any debt, putting this company in a unique position.
HRL also stands out because the Hormel Foundation — a charitable organization — owns about half of the company. This protects it from activists and folks who might want to disrupt the company in the future. The foundation even pushes for higher dividends every year and makes sure it’s a management priority.
To that end, Hormel has increased its dividend annually for more than 50 years in a row — it’s actually both a Dividend Aristocrat and Dividend King. A debt-free company that makes essential food products and is partly owned by a foundation? That’s about as good as it gets when it comes to safe investments.
Management has every reason to focus on the long-term and keep adding more millennial-friendly brands to the line-up, too, rather than worrying about quarter-to-quarter earnings or market volatility. The company is also active on the merger and acquisition (M&A) front and, because its balance sheet is spotless, there’s plenty of capacity for more deal-making. Throw in the recent pullback in HRL stock and this looks like a great entry point.
Walmart (WMT) has been a clear winner from the novel coronavirus outbreak. The company has long been a titan in big box retail. However, the pandemic really shined a light on Walmart’s vastly improved e-commerce capabilities. Its digital sales spiked. While some of that will revert as people get out of their houses more in 2021, a lot of new shopping habits have formed and Walmart is right at the center of that.
It’s no secret that omnichannel is the way forward for retail now. This gives Walmart a point of attack against Amazon (AMZN) for shoppers who want to order everyday goods online but also like seeing certain products in-store as well. And Amazon seems to have lost a bit of its luster during the pandemic. All sorts of rivals managed to have breakthrough moments last year as folks discovered there’s more to the internet than just CEO Jeff Bezos’ shop. As such, Walmart — with its unparalleled infrastructure and logistics capabilities — is in good position to evolve successfully in the new year and beyond.
The company’s overseas operations are a big plus as well. WMT is present in around two dozen countries and is the market leader in many of them. Its Mexican business, Wal-Mart de México (WMMVY) is particularly attractive, with a large and fast-growing market and favorable demographics. So, by owning WMT stock, you also get majority ownership of the company’s burgeoning Central and Latin American business as well.
Wal-Mart de México is also making strong inroads in e-commerce. The company already had its shopping apps up and running along with order-online pick-up options prior to the pandemic. Therefore, when Covid-19 struck, it got to show off its capabilities at a crucial moment. In fact, at one point, the company’s e-commerce sales surged more than 200% year-over-year (Page 27).
Amazon Mexico is not nearly as entrenched as Amazon is in the United States, giving Walmart a golden opportunity to own a massive digital market in future years. While I personally own WMMVY stock directly, the parent WMT stock is a great safe way to own one of the world’s dominant retailers with an excellent emerging markets kicker.
With good luck, Covid-19 will be behind us relatively soon. However, there’s another global health crisis where there is much less reason for optimism: diabetes. There are no vaccines on the way, nor is there an easy fix for the burgeoning rates of global obesity and diabetic cases.
All this ends up making Novo Nordisk (NVO) one of the best safe stocks on the market. As the largest firm in the insulin and diabetes management space, the company is going with one of the most entrenched demographic trends out there.
Its financial results reflect that. Over the past 10 years, NVO has grown earnings at a solid 13% per year compounded clip. It has done so, in significant part, as the company has seen its profit margins and return on equity rise dramatically. Of course, Novo Nordisk isn’t flashy. But as the leader in the fight against one of the world’s largest healthcare problems, it will have many more prosperous years ahead of it. That makes NVO stock a solid and safe investment.
Utilities are one of the most reliable groups of safe stocks available. The industry can withstand sharp economic downturns, as electricity and gas demand tends to be stable regardless of the markets.
But Consolidated Edison (ED) stands out within its peer group for two reasons. Firstly, it’s a leader in developing renewable energy projects and has backed off investments in fossil fuels. That’s a good fit, politically, for its core New York market. The move should also shine more broadly as the Joe Biden Administration takes a more favorable outlook on green energy.
Secondly, though, Consolidated Edison has a long history of treating its shareholders well. The company prides itself on the fact that it has raised its dividend for 46 years in a row. And now, with the recent pullback in yield stocks like Consolidated Edison, ED stock’s dividend yield is up to 4.33%.
That’s near the highest yield the company has offered over the past decade. In a world with interest rates this low, 4.33% per year plus an annual increase is a pretty fine deal.
Walgreens Boot Alliance
Last on my list of safe stocks to buy is Walgreens Boots Alliance (WBA). As we’ve seen over the course of the pandemic, pharmacies are one of society’s true essential services. Recently, there have been some developments surrounding Amazon and other tech giants entering the fray. However, for now it appears that traditional pharmaceutical chains will remain vital pieces of our healthcare network.
Walgreens is starting to reflect that fact. After years of trending downward, WBA stock has enjoyed a sharp recovery in recent months, with shares jumping from $33 in late October to around $50 now. But even after that, the stock still looks cheap. Analysts see the company earning $4.86 per share in 2021 and rising to an EPS of $5.23 in 2022. That puts the stock at about 11x trailing and 10x forward price-earnings. Walgreens also just snagged a new CEO away from Starbucks (SBUX), leading to another rally in its share price.
Now, to be sure, some of the risks folks were worried about last year with WBA still apply. However, with the firm’s earnings trending higher again and its importance to society reaffirmed, this company is looking healthier by the week. Plus, the stock’s 3.65% yield certainly boosts its appeal even more.
On the date of publication, Ian Bezek held long positions in ED, WBA, NVO, WMMVY and HRL stock.
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