If there’s anything to expect in 2017 when looking for stocks to buy, it’s almost certainly the unexpected — along with a good amount of market volatility.
Newly sworn-in President Donald Trump has led to a sharply divided populace. Eight years after the worst of the financial crisis, the global economic recovery still hasn’t completely taken off. China appears to be the world’s best-performing large economy — but no one truly believes its published figures (or that there aren’t a couple of bubbles waiting to burst in that country).
The U.S. stock market is near an all-time high, but many investors believe equities are overvalued. There’s an argument that sub-2% yields on U.S. Treasuries led investors to substitute stocks for bonds. Rising returns on bonds, then, could lead that trade to reverse, increasing volatility in equities. So what’s an investor looking for stocks to buy to do?
The answer might be to focus on safe stocks built to handle pretty much any political or economic environment — or almost any amount of market volatility. Those stocks do exist, and while the upside return might be more limited, they also provide more safety.
In a topsy-turvy market, where Trump is among many potential headline risks, these 10 stocks can offer shelter.
Stocks to Buy to Survive a “Trumpsy-Turvy” 2017: Rollins (ROL)
You might not be familiar with Rollins, Inc. (NYSE:ROL), but you almost certainly know one of its subsidiaries: pest control company Orkin. Rollins gets rid of pests — and termites — the world over.
Rollins also continues to post steady, solid growth, and offers a modest 1.2% dividend yield for good measure.
To be sure, ROL shares aren’t cheap, with the stock trading at 44 times analyst estimates for 2016. But the company’s cash flow is stronger than its earnings, mitigating that issue somewhat. And the stock traditionally handles volatility well: ROL stock held up well through the worst of the financial crisis. Since then, the stock has increased almost 500%.
The company should benefit from potentially lower corporate income tax rates (should they get passed in 2017 or 2018), and anyone who has had termites or mice in their home understands that pest control is not an expense to cut in any economic environment.
ROL isn’t cheap, but its growth makes it a good choice for investors looking for a stock to buy that can handle a potentially volatile broad market.
Stocks to Buy to Survive a “Trumpsy-Turvy” 2017: Barrick Gold (ABX)
To be honest, Barrick Gold Corporation (USA) (NYSE:ABX) might not be the safest option in a volatile market. While gold traditionally gains value in times of uncertainty and volatility, investors can buy physical gold or the SPDR Gold Trust (ETF) (NYSEARCA:GLD) instead.
The point of buying a gold miner, however, is to gain leverage to the gold price — which means investors bullish on gold should consider ABX.
The problem in the past is that Barrick has failed to create that leverage. Over the past 10 years, the GLD ETF is up 83%; Barrick stock is down almost 40% over the same period. But cost-cutting and debt reduction have improved operations substantially. Barrick can break even in terms of free cash flow with prices even under $1,000 per ounce. And with gold down about $100 just since the U.S. election, and volatility likely to show up at some point in 2017, a bottom may be in for the yellow metal.
With Barrick’s recent improvements, ABX stock should benefit nicely from any increase in gold prices.
Stocks to Buy to Survive a “Trumpsy-Turvy” 2017: Entergy (ETR)
One place to seek out safety in a time of market volatility traditionally has been electric utilities. At the moment, the best choice in the space looks like Entergy Corporation (NYSE:ETR). ETR shares actually haven’t done much the last few years, with shares back at 2009 levels. And the company recently announced the closure of two nuclear plants over the next five years, which could add some one-time costs and some modest pressure to revenue.
But this still is a stock trading below 16 times 2017 “operational” EPS estimates despite consistent, if modest, growth. A dividend near 5% offers income, and contracted rates and modest increases in customers, should keep that growth steady going forward.
ETR isn’t going to offer explosive upside — but the downside should be protected.
Stocks to Buy to Survive a “Trumpsy-Turvy” 2017: Middlesex Water (MSEX)
Electric utilities aren’t the only options for safety in the market — or dividends. Water utilities generally aren’t as well-covered, or as large, as their electric counterparts — but that doesn’t mean they should be ignored.
For investors concerned about volatility, Middlesex Water Company (NASDAQ:MSEX) is a solid choice.
Middlesex’s dividend isn’t an impressive as Entergy’s, with a yield of just 2.2%. But Middlesex has paid a dividend for 105 consecutive years, one of the longest streaks in the world. And that dividend has been increased in each of the past 44 years.
The company operates in New Jersey, Pennsylvania and Delaware — all states with per capita income above the national average. Earnings per share have grown almost 25% through the first three quarters of 2016, and yet the stock trades at just 24x its estimated 2016 EPS.
As water becomes an increasingly scarce resource, MSEX should benefit in the long term. And in the short-term, the stock offers an impressive margin of safety.
Stocks to Buy to Survive a “Trumpsy-Turvy” 2017: Medtronic (MDT)
Traditionally, healthcare stocks have been considered a safe place to hide during periods of market volatility. That has changed over the past few years, as the Affordable Care Act and increasing political regulation have provided some pressure on the industry.
At a time when a single tweet from President Trump can move stocks, and when drug pricing in particular is under the microscope, healthcare stocks don’t seem as steady, or as attractive, as they did not long ago.
But Medtronic, Inc. (NYSE:MDT) still should be attractive in a more volatile environment. The world’s largest medical device manufacturer certainly has some regulatory risk — but far less than mega-cap drug makers like Pfizer Inc. (NYSE:PFE) or Bristol-Myers Squibb Co (NYSE:BMY), whose shares are at a two-year low after a setback with a promising lung cancer treatment. MDT shares did fall in the ’08-’09 financial crisis, but they recovered quickly, and now have nearly tripled from those lows.
A diversified product base and increasing health spending should provide stable growth, and a 2.3% yield and a 15x forward multiple leave MDT stock relatively cheap. That’s a nice combination in any market environment.
Stocks to Buy to Survive a “Trumpsy-Turvy” 2017: B&G Foods (BGS)
People gotta eat, right?
Food stocks actually haven’t performed all that well of late, as smaller brands have taken share and deflation has pressured margins. But there is a core demand for staples and vegetables, and B&G Foods, Inc. (NYSE:BGS) satisfies that demand.
B&G owns well-known brands like Cream of Wheat, Emeril’s, Mrs. Dash, Ortega and Green Giant, among many others.
And while the industry as a whole has struggled, B&G’s performance has been solid. The midpoint of 2016 guidance implies 40% year-over-year growth in adjusted earnings per share. Admittedly, much of that growth is coming from acquisitions, and the debt on B&G’s balance sheet could hurt the stock if performance does disappoint.
But a recent purchase expanded its spice & seasoning business, and should add as much as 25 cents per share to 2017 EPS. B&G also has taken complete control of the Green Giant brand, another potential growth driver. BGS stock now trades around 16-17 times 2017 EPS — a multiple that’s just too cheap given its growth potential.
And with some downside protection likely coming from its concentration in spices and vegetables, BGS is an interesting play for investors concerned about volatility in the broader market.
Stocks to Buy to Survive a “Trumpsy-Turvy” 2017: Coty (COTY)
Coty Inc (NYSE:COTY) admittedly is probably the riskiest stock on this list. Investors were optimistic toward a major deal with Procter & Gamble Co (NYSE:PG), driving shares up. But a disappointing Q3 tanked the stock, and Coty stock trades 35% below levels seen as recently as mid-August.
In my eyes, that presents an opportunity.
Perfumes and cosmetics traditionally perform better in difficult economic times than one might expect, as women continue to spend on beauty products while often cutting back on big-ticket purchases. Debt is a concern, and Coty has spent another $1 billion-plus on acquisitions since October.
But the 41 brands acquired from P&G are just starting to contribute to earnings, Coty just hiked its dividend 82% (and moved to a quarterly payout schedule), and COTY stock has stabilized over the past few months.
Coty’s downside protection isn’t absolute, but in more nervous times consumers often focus on what they can control. Quite often, that includes the type of beauty products manufactured by Coty.
Stocks to Buy to Survive a “Trumpsy-Turvy” 2017: Clorox (CLX)
Speaking of Procter & Gamble, PG stock traditionally has been one of the more well-known defensive plays; a “safe haven” in times of market volatility. But with PG shares trading at their highest earnings multiple in over a decade, and growth meager (profits are guided basically flat for FY17, with EPS growth coming from a lower share count), I don’t believe that stock is nearly as safe as it used to be — or as investors believe it is.
I’d rather target P&G’s smaller rival, Clorox Co (NYSE:CLX).
Clorox is guiding for better revenue and EPS growth this year, yet its earnings multiple is in line with that of P&G. Procter & Gamble does pay a larger dividend, with a yield over 3% against CLX’s 2.6%.
That may change, however: P&G’s dividend increased just 1% last year, against a nearly 4% raise from Clorox. Over the past decade, CLX has significantly outperformed PG, with shares up 90% against just a 38% gain for PG.
I’d expect that to continue in 2017 … though both stocks may benefit if investors get nervous.
Stocks to Buy to Survive a “Trumpsy-Turvy” 2017: Dean Foods (DF)
Dairy prices have been low for some time now, but they may begin to recover in 2017. A prime beneficiary of such a trend would be Dean Foods Co (NYSE:DF).
DF shares have been range-bound for over three years now, in large part due to those lower prices. That seems to imply a reasonable amount of pent-up demand should milk prices, in particular, strengthen.
As far as staples go, it doesn’t get much safer than milk, providing some downside protection to DF earnings and its stock price. Shares trade at under 13 times 2017 EPS, yet the company is coming off a strong third-quarter report and has potential benefits from an ongoing cost-cutting program. Inflation expectations are increasing in 2017, given higher interest rates and other factors, which should benefit the food industry as a whole.
Given that dairy has been one of the most beaten-down products the last few years, its prices should have the most room to increase in that scenario — and Dean Foods would benefit. And even if prices don’t increase, stable demand and a cheap stock price should keep DF investors protected from broad market volatility.
Stocks to Buy to Survive a “Trumpsy-Turvy” 2017: Senior Housing Properties Trust (SNH)
No matter what happens in 2017, there’s one thing that will be certain: The baby boomer generation will get a year older. That should drive demand for elder care, and Senior Housing Properties Trust (NASDAQ:SNH) should benefit.
The combination of real estate and exposure to increasing cohorts of retirees promises potential growth in any environment. Meanwhile, a dividend yield over 8% provides income, while the real estate investment trust (REIT) structure limits corporate-level taxes.
Adjusted FFO (funds from operations, a measure of REIT cash flow) is up just 3% year-over-year through the first nine months, a modest level of growth. But SNH stock is trading at barely 10 times 2016 FFO, a multiple that implies the business will decline. Given demographic headwinds, and that even a Republican-controlled government will be unlikely to disrupt Medicare or Social Security, that valuation simply looks too pessimistic. A return to the $22-$23 levels seen as recently as September doesn’t seem out of the question, and combined with the dividend would offer a 25% return.
And, like the other stocks on this list, those gains can come even if there is some bad news on the economic or political fronts.
As of this writing, Vince Martin did not hold a position in any of the aforementioned securities.