7 Safe Stocks to Buy in the Midst of an Unsafe Market
During times of market uncertainty, investors tend to migrate away from risky investments to find more stable and secure ones, this is referred to a “flight to safety” and it makes sense because there are certain types of investments that hold up during market downturns.
With stocks down 20% this year, where should investors hide? Is there such thing as a safe stock?
Today, I want to introduce “The Safe Seven” — 7 stocks that represent stable businesses and consistent cash flow. These companies have high profit margins, good dividends, and low beta. They have been screened and tested against their peers and found to be best of breed. In fact, a portfolio of these seven holdings would have trounced the S&P 500 over the past 10 years AND withstood the recent downturn (only down 5% YTD).
Introducing The Safe Seven…
1. Verizon Communications (VZ)
The largest wireless carrier in the United States and also a major provider of broadband and fiber. The company has experienced consistent revenue growth and margin expansion. The stock only has a 9 PE ratio and sports a nice 5% dividend yield, which has been increased by management for 18 consecutive years.
Verizon stock is not going to double anytime soon. But if you are looking for a stable company to invest in, Verizon is an excellent option to consider.
2. Pepsico (PEP)
Regarding the drink, I actually prefer Coke, but Pepsico encompasses brands such as Gatorade, Frito-Lay, Quaker Oats, and Sabre Hummus. It has a diversified portfolio of food and beverage across an international presence. They have consistent revenue and earnings growth and a lack of sensitivity to the business cycle.
In the past year, the stock is up 13% while the S&P 500 index is down 9%! It pays a 2.7% dividend and 22 PE ratio (compared to Coke’s 26). I’ve owned this stock for years and love the consistency it brings to my portfolio, consider it for yours as well!
3. Public Storage (PSA)
One of the best business models you can find is storage facilities! You build a cheap building, rent out the space for people to store their junk, they forget about the junk and keep paying you monthly fees. It’s brilliant! Maybe that’s why Public Storage has a 50% profit margin and the stock consistently outperforms the market.
4. BlackRock (BLK)
While not necessarily a household name, BlackRock is a financial bellwether that everyone should be aware of. It’s the world’s largest asset management firm with nearly $10 trillion AUM — that’s larger than Vanguard, Fidelity, Morgan Stanley,Goldman Sachs, and not to mention, every nation besides the US and China! Can you say too big to fail?
The stock has been a consistent winner — if you had invested $1,000 in BlackRock in 2000, you would have $60,000 today! Aside from price appreciation, the stock carries a strong 3% dividend. It doesn’t get much safer than BlackRock if you are looking for a strong investment.
5. UnitedHealth Group (UNH)
It doesn’t get much more safe than insurance. That’s one of the reasons Warren Buffett loves GEICO — it’s a consistent cash generator. UnitedHealth is the largest managed health care firm in the United States, providing health care plans to a wide array of customers.
UnitedHealth makes 80% of its revenue from insurance premiums, and we all know that those continue to rise! The stock has been on a tear, up 500% since 2015 but I believe that this stock will continue to make new highs as investors seek out the safety of the insurance business.
6. American Electric Power (AEP)
A discussion of safe stocks would be incomplete without including a utility! Utility companies are the epitome of safety! And that’s why the utilities sector has been the best performing sector this year (besides energy). Just think about it — do you know anyone who cuts costs by not having electricity for a month? I don’t think so. Utility companies are recession-proof companies with consistent revenue, consistent earnings, and consistent dividends.
American Electric Power is a $48 billion electric utility company with a presence in Texas, Oklahoma and the Midwest. Honestly, it’s a pretty boring company with a boring business — and in the stock market, that’s actually a good thing!
7. Texas Instruments (TXN)
While often overshadowed by AMD and Nvidia, Texas Instruments is one of the world’s largest manufacturers of semiconductors. Their business model is superb with a hefty 40% profit margin. They have reported positive earnings surprises 12 of the last 13 quarters! The stock sports a 3% dividend, which management has raised for 18 consecutive years.
The only thing that I don’t like about Texas Instruments is the cyclicality of the semiconductor industry. However, they have a broad array of products diversified across many sectors. I believe their current valuation plus strong cash position will allow them to weather any potential economic storms.
There you have it — The Safe Seven: VZ, PEP, PSA, BLK, UNH, AEP and TXN. A diversified portfolio of secure companies with decades of earnings growth and strong dividends. In the midst of a rocky market, these are the types of investments that you want to seek out.
For reference, I used the following criteria for screening these picks:
- Consistent revenue and EPS growth for last 10 years
- Dividend higher than 2%
- PE ratio lower than 30
- Low Beta (price stability compared to market)
- Net profit margin higher than 10%
- No recent negative earning surprises
- Not in a seasonal or cyclical business (airlines, cruises, autos, etc.)