2 Stocks to Buy for Conservative Investors

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I believe the financial world has distorted the meaning of the word “conservative” with respect to investing. People use it to mean a portfolio heavy on bonds and fixed income, with little equity exposure.

ETFs to BuyThat approach may suit certain investors, but I believe it results in underperformance as investors avoid great stocks to buy.

You can, and should, be earning more with your portfolio without substantially increasing risk, even as a “conservative” investor.

To me, the word “conservative” means properly assessing your risk tolerance, and investing within that tolerance. An investor who only puts money in growth stocks can still be a conservative investor by staying within his or her risk parameters.

Why is this important? Because investors and managers have steered self-described “conservative” investors into portfolios that are intended to keep pace with inflation but, in fact, aren’t even achieving that goal.

That’s because few investors or investment managers know how bad inflation really is. They rely on the Consumer Price Index, which does NOT represent the true rate of inflation. That’s because the government, since 1983, has manipulated how the CPI is calculated, because government payment increases are tied to the CPI.

I have terrible news. Inflation is not 3%. Depending on the city you live in, it is between 7% and 14%.

That’s not an exaggeration. This isn’t conspiracy theory. It’s real data based on what real consumers spend their money on each year.

That’s why, if you are a “conservative” investor, you are vastly underinvested if trying to just keep pace with inflation and not even thinking about which stocks to buy.

For now, I want to give you some suggestions of stocks to buy, using an approach you are probably familiar with.

Conservative Growth Stocks to Buy: Lear Corporation

When it comes to being conservative in equity choices, and given the inflation that you need to keep pace with, Growth At A Reasonable Price (GARP) stocks are a great place to look. In the small-cap arena, one possible candidate is Lear Corporation (NYSE:LEA).

Lear makes seating and electrical systems for cars and trucks. The secular trends for auto and truck sales have been great, as sales have been constantly increasing, gas prices have fallen, credit is easier to obtain, and parts suppliers have been in heaven.

Lear has been growing at 19% annually, has a solid history of reliable free cash flow, pays a modest 0.9% dividend, but most of all, only trades at a P/E of 13, making it substantially undervalued.

Growth Stocks for Conservative Investors: Apple, Inc

Now, I’ll give you a suggestion for stocks to buy that you may associate with high risk. I have to tell you, though, that Apple, Inc. (NASDAQ:AAPL) is potentially a great holding for a conservative investor.

What conservative investors are often concerned about is preservation of capital. As mentioned, with inflation out of control, this isn’t a viable strategy anymore. So if you are going to move into equities, you want a blue-chip company that isn’t overvalued like so many of them are. You want a company that will be in business for a long time, that has a fortress-like balance sheet, robust cash flow, and is growing.

Apple fits all of these criteria, and so many more.

The company has $145 billion in cash and investments, which is $25 per share. That means the stock has an effective price of $100 per share. With FY15 earnings expected to rise from $6.45 per share to $8.60 per share, and 13% annually over the next five years, you have a undeniable GARP stock.

Apple trades at only 14.5 times FY15 earnings! You get $40 billion annually in free cash flow to go with it. It’s one of many great stocks to buy for conservative investors.

You can learn more about how to evaluate stocks with this new understanding of “conservative”, and in context with a long-term diversified portfolio strategy, when I launch The Liberty Portfolio Newsletter in a few weeks.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. As of this writing, he did not hold a position in any of the aforementioned securities. He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He is the Manager of the forthcoming Liberty Portfolio. He can be reached at TheLibertyPortfolio@gmail.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/03/2-stocks-to-buy-for-conservative-investors/.

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