7 Rock-Solid Stocks to Buy for a Rocky Market


The stock market continues to plod along in 2015, with one step forward followed quickly thereafter by one step back.

7 Rock-Solid Stocks to Buy for a Rocky MarketTotal returns so far on the year are about 2% for the major indices as of this writing. Earning growth is actually negative. And thanks to continued concerns in both Europe and China — to say nothing of a looming policy change at the Federal Reserve at home — we can be sure to see more volatility and uncertainty in the markets for the rest of the year.

For investors with cash to deploy, it might seem like the market holds very few good options. Bonds hold interest-rate risk, high-growth tech stocks trade for extraordinary earnings multiples, and many international investments have proven they can drop like a rock on almost no notice.

If you’re looking for stability, then, there aren’t a lot of places to turn.

But lucky for you, I’ve dug into the fundamentals and valuation metrics of major publicly traded companies and uncovered seven rock-solid stocks to buy that stand a good chance of both preserving your capital and also making a decent profit in the months ahead.

None of these stocks are momentum darlings that will deliver 50% returns overnight. But if you’re looking for rock-solid plays with steady performance, these picks are for you.

Let’s take a look:

Rock-Solid Stocks to Buy: VMWare (VMW)

Safe Stocks to Buy: VMWare (VMW)Market Cap: $36 billion
Sector: Technology
YTD Performance: +5% vs. +2% for the S&P 500

VMware (VMW) has been a heartbreaker for many investors, with shares of the virtualization and cloud computing company staying choppy but going basically nowhere since 2011.

That’s hard to wash with the fundamentals, however, since VMW stock has seen its earnings and revenue march steadily higher across the last three or four years.

The story hasn’t been about a lack of growth, then, but about investors afraid of overpaying. Consider that in fiscal 2012, the company recorded only $1.72 in earnings but saw its share price occasionally trade for more than $100 — giving it a forward price-to-earnings ratio of about 60.

Now, with FY2016 earnings projected to hit $4.54 and share prices around $90, the earnings multiple is closer to 20 and thus much more palatable.

Not only is VMWare a great way for investors to play tech stocks without overpaying, it’s also still clearly in growth mode and should deliver good performance going forward as “the cloud” remains all the rage.

The icing on the cake: IT giant EMC Corporation (EMC), which owns a big stake in VMWare, is rumored to be considering an outright buyout of outstanding shares in VMW stock, thanks in part to pressure from activist investors. A buyout premium would deliver a quick pop to shrewd investors who get into VMWare now.

Rock-Solid Stocks to Buy: Goodyear Tire (GT)

Safe Stocks to Buy: Goodyear Tire (GT)Market Cap: $8.4 billion
Sector: Consumer discretionary
YTD Performance: +12%

Automakers Ford (F) and General Motors (GM) are enjoying strong sales lately. General Motors earnings more than doubled on strong margins driven by pickup truck demand, and Ford saw a 44% jump in profits to trounce forecasts. Furthermore, overall auto sales are on track for a record year.

All this isn’t just good news for Ford and GM, but also for tire giant Goodyear Tire (GT).

Goodyear trades for a forward P/E of less than 9 right now, and less than half of 2015 sales! That’s a steal, no doubt about it. Throw in a modest yield of about 0.8% after Goodyear reinstated its dividend in 2013 as well as a current share repurchase effort worth about $450 million through 2016, and you’ve got a decent value play here.

Admittedly, you’re never going to see mega-growth trends out of Goodyear. And yes, the surge in auto sales could be offset by a downturn in a few years. But GT stock has gotten its mojo back after some rough times during the Great Recession and has actually seen shares snap back by more than 100% since early 2013 as a result of more solid footing.

Considering how cheap valuation metrics still are after this run, it’s reasonable to expect this run to continue across 2015 even if things get rocky for other companies.

Rock-Solid Stocks to Buy: Valero (VLO)

Safe Stocks to Buy: Valero (VLO)Market Cap: $32.7 billion
Sector: Energy
YTD Performance: +40%

You might think that all energy stocks are dead. Well, Valero (VLO) is doing quite well, thanks in large part to its refinery focus that keeps it insulated from some of the volatility other oil stocks are suffering.

You see, refining stocks actually profit from an oil slump because they make money on the spread between what they buy crude oil for and what they sell the refined end-products for. That means cheap gas but cheaper oil actually is a good thing for Valero — hence the 40% gain in VLO since January! In fact, lower natural gas prices help, too, because VLO and other refiners use lots of LNG as part of the refining process for certain products.

This is a hidden gem in the energy industry because of this odd benefit from low oil and gas prices.

Everybody was getting VLO dead wrong to start the year, with the refiner blowing away revenue targets by over $1 billion in January. Analysts took a tougher stance in more recent reports, raising estimates, but Valero continues to hang tough with strong margins and a good outlook.

After expanding its buyback program to $2.5 billion and boasting a yield of 2.5% even after this run, investors should have confidence that Valero will keep up its strong performance going forward.

Rock-Solid Stocks to Buy: Cisco (CSCO)

Safe Stocks to Buy: Cisco (CSCO)Market Cap: $143 billion
Sector: Technology
YTD Performance: +3%

Cisco (CSCO) has been a pain for many investors over the last few years. The tech stock has made overtures about restructuring for years now, with thousands of Cisco layoffs an annual occurrence dating back to the summer of 2011.

But Cisco stock investors have reason to be optimistic as the company approaches its next earnings report this Wednesday. CEO John Chambers showed a lot of swagger after Cisco earnings in February — and CSCO responded with a huge pop as a result — and the company seems to be rallying in recent weeks.

There’s good reason for investor optimism. Cisco’s networking dominance has made it the clear market share leader in cloud infrastructure — the servers and technology that make the cloud possible — with 14% of total revenues in this category to top both Hewlett-Packard (HPQ) and International Business Machines (IBM). As for security, Cisco continues to grow ambitiously in this category with efforts that include the well-timed acquisition of Sourcefire in 2013. Being on the right side of these important tech trends will help Cisco’s future earnings.

Then, there are the dividends.

Since instituting its dividend in 2011, Cisco has increased its payout five times — from an initial 6-cent quarterly payout to its current 21 cents per share. That 250% increase in about four years would be impressive enough, but dividend distributions are still under 40% of projected 2015 earnings. That means payouts are not just sustainable, but likely to increase. Not bad considering the current dividend yield for Cisco is at 3%. And with almost $54 billion in cash and investments on the books, there is plenty of dry powder to fuel future dividends and buybacks in any environment.

Throw in restructuring efforts to cut costs and an attractive forward P/E ratio of about 12.4, and CSCO stock seems a strong value play right now — and most importantly, one of the few tech stocks you won’t have to overpay to own.

Rock-Solid Stocks to Buy: Scorpio Tankers (STNG)

Safe Stocks to Buy: Scorpio Tankers (STNG)Market Cap: $1.9 billion
Sector: Energy
YTD Performance: +20%

Tanker stocks are notoriously volatile, and investors who were burned a few years ago as the sector collapsed might be rolling their eyes at any notion that this sector is “safe.”

But Scorpio Tankers (STNG) is up nicely year-to-date and offers a juicy and sustainable dividend. Furthermore, the glut of crude oil supply around the world has strained all forms of infrastructure — including tankers — to deal with the storage and transportation of this mammoth energy supply.

That all adds up to stability, even if on the surface a midcap tanker seems a bit risky.

First, let’s look at the dividends. STNG stock pays 12.5 cents quarterly after a recent increase this year and is projected to earn $1.22 per share in FY2016 — giving it a payout ratio of about 40% if distributions remain constant across the next year or so. The headline yield of 4.8% should have already gotten your attention, but the sustainability and potential for increases makes it even more of a draw.

Scorpio Tankers has fought back to profitability, but is also improving its top line nicely with revenue projected to double in fiscal 2015, year-over-year.

There are risks, sure, but a forward P/E of less than 9 and a bit of investor optimism go a long way toward putting a strong foundation under STNG.

Rock-Solid Stocks to Buy: Delta Air Lines (DAL)

Safe Stocks to Buy: Delta Air Lines (DAL)Market Cap: $36.6 billion
Sector: Industrials
YTD Performance: -6%

Airline stocks have underperformed this year after (pardon the pun!) lifting off in 2013 and 2014.

But this pullback, coupled with persistently cheap oil, presents a buying opportunity.

Delta Air Lines (DAL), in particular, offers a good bargain for investors with a forward price-to-earnings ratio of 8.5 and a forward price-to-sales of about 0.9. The stock also pays a modest 1.2% dividend yield right now, too.

When you consider the cheap oil prices lifted earnings as well, as well as that a recent study by trade group Airlines for America showed carriers are expected to serve a record number of passengers this summer, it’s hard to not see an opportunity here.

It’s not just bargain valuations and cheap oil, either. The Dallas Morning News estimates that U.S. passenger airlines booked their first ever quarter with over $5 billion in net income — about $5.3 billion in adjusted profits to be exact, up dramatically form $4 billion from the group in 2014.

A highly regulated industry like airlines admittedly has limited potential for profits and margin expansion. And yes, the Department of Justice has subpoenaed a few of the majors for allegedly fixing prices to minimize capacity increases, and that’s a risk.

But when you look at a major carrier like Delta with this kind of value in shares, investors should consider it a long-term buying opportunity — particularly in a cyclical upswing for consumers and businesses alike.

Rock-Solid Stocks to Buy: Archer Daniels Midland (ADM)

Safe Stocks to Buy: Archer Daniels Midland (ADM)Market Cap: $28.2 billion
Sector: Consumer staples
YTD Performance: -10%

When you think of rock-solid investments, you can’t get much more stable than a consumer staples giant like Archer Daniels Midland (ADM). With a 2.4% dividend and a business that is pretty much recession-proof thanks to its dominance in grains and deep relationships with major food products companies, ADM isn’t going anywhere.

And with a forward price-to-earnings ratio of about 13.4 and a super-low price-to-sales of under 0.4 right now, investors can be sure they are buying ADM stock at attractive levels.

There’s also a robust share repurchase plan at Archer Daniels Midland, which deployed about $1.8 billion in 2014 on stock buybacks and dividends, and the company will continue to reduce share count going forward.

This kind of sleepy stock will never burn the house down with big gains in short order. However, if you’re a long-term investor who is looking to add to your portfolio but don’t like some of the froth out there, consumer staples king ADM could be one of your best bargain buys right now for stability.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.

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