It’s official. The latest correction in the markets has entered scary territory. If you’re one of the thousands of investors freaking out, you might want to consider these seven stocks to own should things get really ugly.
Boy, did it come out of the blue, or what?
The S&P 500 gained 5.7% in January. By the end of trading Feb. 7, it had lost more than 80% of those gains culminating with the index’s reversal of fortune.
Up 1.2% in the first few hours of February 7 trading, investors fled in droves, sending stocks for a 0.5% loss on the day, the fourth negative performance in five days of trading erasing more than a trillion dollars in market cap.
Where to hide other than cash?
Here are seven stocks to own I believe can withstand whatever else this correction throws at investors.
You’ll note all seven have little or no debt, lots of free cash and as wide a moat as possible.
Stocks to Own Should Latest Correction Get Really Ugly: Public Storage (PSA)
I recently moved from Toronto to Halifax, a thousand-mile change in residence. Not having moved in a while, my wife and I had accumulated a lot of junk.
It made me realize that people don’t like to part with their junk, hence the growth in self-storage facilities like the ones owned by Public Storage (NYSE:PSA).
There’s a two-step process.
First, you realize your house is overloaded with stuff, so you rent a storage locker to declutter. Then after a few years, you forget why you had a storage locker in the first place, so you call someone like 1-800-Got-Junk to haul it away. And then you repeat the process over and over until you die.
I’m facetious, of course, but I’m sure there’s a grain of truth in what I’m saying. In good times and bad, people are always looking for storage space.
Last July, I called PSA a boring stock to own, which it is, because it operates in an industry that’s only going to keep growing as boomers downsize.
Since recommending its stock, it’s down a little more than 10%. At the time, I thought it was cheap; it’s even cheaper today. It yields an attractive 4.3%.
Stocks to Own Should Latest Correction Get Really Ugly: Acuity Brands (AYI)
Consider this my contrarian pick of the bunch.
Acuity Brands, Inc. (NYSE:AYI) specializes in lighting solutions for homes and businesses. It has been in an awful funk in recent years after going on a big run that saw its stock deliver annual returns of 29%, 62%, 29% and 67% between 2012 and 2015.
In January, I called Acuity Brands one of the ten stocks that could surprise in 2018. That’s on top of recommending its stock on two occasions in 2017.
Since my article, it has lost another 20% on top of the 24% it lost in 2017.
A glutton for punishment, I can’t ignore the fact analysts expect it to earn $9.40 a share in 2018 and $10.23 in 2019. That’s less than 15 times its forward 2019 earnings.
Considering its P/E ratio hasn’t been this low since 2008, I see Acuity as a smart buy in a market that’s taking down overpriced stocks.
Stocks to Own Should Latest Correction Get Really Ugly: Hormel Foods (HRL)
When times get difficult, many people eat to forget their problems. A company like Hormel Foods Corp (NYSE:HRL) can help with that. Some of its brands have been around for years such as Spam, its mystery meat product in a can.
Hormel as increased its dividend for 52 consecutive years. In times of market volatility, it’s nice to know you’re going to get paid regardless of what happens to the stock price in the interim.
In October, Hormel announced that it was paying $850 million to acquire Columbus Manufacturing, Inc., a California business that specializes in premium deli meats under the Columbus brand. Together with its other deli brands Hormel and Jennie-O, it allows the company to provide a stronger offering to grocery stores in the refrigerated foods aisle.
Accretive to earnings in both 2018 and 2019, this is an excellent example of a strategic investment that will transform this segment of Hormel’s business.
Hormel stock has flatlined since early 2016. The Columbus acquisition should help get it unstuck. Until it does, a 2.3% yield isn’t a bad trade-off for a stock that’s trading at 17.5 times cash flow, its cheapest valuation since 2012.
Stocks to Own Should Latest Correction Get Really Ugly: Tractor Supply (TSCO)
Tractor Supply Company (NASDAQ:TSCO) serves the rural lifestyle. Its combination of product offerings provides a nice contrast to retailers like Walmart Inc (NYSE:WMT) and Home Depot Inc (NYSE:HD).
In the last couple of years, TSCO’s stock has missed out on the broader rally in the markets and now trades in the high $60’s, well off its all-time high of $97, hit in May 2016.
Its recent earnings results are encouraging — same-store sales up 4% in Q4 2017 compared to 3.8% a year earlier; transactions were up 2.7% and average ticket increased 1.3% — but it needs to work a little harder on keeping margins in check if it also wants to grow the bottom line.
A big reason for the 120 basis point increase in its Q4 2017 SG&A expenses is Tractor Supply continues to work on providing a better customer experience through technology and employee training and those things cost money.
In 2018, TSCO sees comps of at least 2%, net income of between $490 million and $515 million, and net sales of at least $7.69 billion.
In the past week, TSCO stock’s seen a 12% slide in its share price and is now trading at 16.7 times its forward earnings, which is well below its average P/E ratio over the past decade.
Perhaps, this too is a contrarian pick for a volatile market, but I see a stock that’s taken a beating for far too long and is ready to come to life.
Stocks to Own Should Latest Correction Get Really Ugly: Carter’s (CRI)
When it comes to buying clothes for babies and young children, Carter’s, Inc. (NYSE:CRI) has the upper hand on the rest of retail. Between the Carter’s and OshKosh B’gosh brands, many new parents make it a must visit, hence why it’s the largest branded marketer of apparel to these two age groups.
Sure, we might not be having kids at the same rate as in the past, but we’re definitely willing to spend money on those we do bring into the world. We’ll forego buying ourselves a nice pair of pants to buy that cute jumper for our newborn.
In Carter’s Q3 2017 results announced at the end of October, it had notably strong U.S. results. Retail same-store sales increased 2.6% on the strength of eCommerce comp growth of 20.9%, offset by a 3.2% decline in brick and mortar sales.
Interestingly, that’s not necessarily a bad thing for the company. As customers become accustomed to the fit of its clothes, it makes sense for returning buyers to purchase online saving themselves time.
Omnichannel means you’re sometimes going to see store comps contract as eCommerce grows. It’s a fact of life in the new retail.
Carter’s continues to drive margins higher generating record free cash flow which it uses to buyback shares, pay dividends and keep debt low.
As long as people have kids, it’s a great stock to own in volatile markets.
Stocks to Own Should Latest Correction Get Really Ugly: Church & Dwight (CHD)
Church & Dwight Co., Inc. (NYSE:CHD) not only is a great stock to own should the markets get really ugly, it’s one of the most consistent performers trading on the NYSE.
Back in 2016, I wrote about the consumer packaged goods company’s perfect record over the past decade. It hadn’t experienced a single year in negative territory. It’s carried on with that tradition notching gains of 5.8% in 2016 and 15.3% in 2017.
The gains over the past two years seem insignificant compared to the S&P 500, but over the long haul, Church & Dwight has delivered for shareholders. A $10,000 investment in CHD stock at the beginning of 2008 is worth approximately $42,000. The same investment in the index is worth approximately $23,000 or 40% less.
The company has a proven method for building its business through acquisitions and organic growth. By focusing on a few healthy brands, it’s able to grow market share over time.
If you’re going to buy only one consumer defensive stock for your portfolio, Church & Dwight ought to be it.
Stocks to Own Should Latest Correction Get Really Ugly: Jacobs Engineering (JEC)
While an infrastructure plan is said to be coming from the White House at any moment, Jacobs Engineering Group Inc (NYSE:JEC) is too busy to notice.
The professional services company just released its Q1 2018 results and they were very healthy with adjusted net earnings up 13% to $97 million or $0.77 a share with double-digit organic revenue growth from its professional services segment.
The company continues to integrate its 2017, $3.3 billion acquisition of CH2M, Colorado’s largest privately held company. Jacobs is excited about the future with CH2M a part of the company.
Jacobs raised its fiscal 2018 guidance for adjusted earnings from $3.75 a share to $4.05, almost a 10% increase, as a result of the lower corporate tax rate.
It finished the quarter with a backlog of $26.2 billion. As the company continues to focus on profitable growth, I would expect JEC stock to hold up well should the markets continue to correct.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.