If you weren’t rattled before, odds are good the rough start to this trading week has you on edge. The S&P 500 is now down nearly 4% from its recent peak, and arguably worse than that, it’s back under some key technical support levels. Its best shot at a quick recovery is now in the rearview mirror.
Anything’s still possible, and the threat of a brewing corrective move is hardly a reason to bail out of the stocks you’re truly committed to for the long haul. In fact, should this turbulence turn into full-blown trouble, any dip is actually a decent buying opportunity.
For the piece of your portfolio that’s something in between speculative and pure buy-and-hold holdings though, now may be a good time to start thinking a little more defensively and a little less aggressively. Here’s a rundown of seven names that may prove safer, counter-cyclical bets than the hot stocks that made the runup early this year such a fun ride.
In no certain order:
For many investors, the knee-jerk assumption is that software giant Microsoft (NASDAQ:MSFT) is so inextricably linked to the all-important technology market that an economic swoon could easily up-end this well-known name. And, at a point in time that was the case.
That’s not the case any longer, however, for a handful of reasons.
Chief among them is the fact that its Azure cloud-computing platform has become the foundation for an untold number of organizations that, now with an established presence in the cloud, aren’t going to take a step back. The company’s commercial cloud revenue grew 41% last quarter, to $9.6 billion, led by Azure’s 73% year-over-year growth.
The second-biggest reason MSFT stock rates as a top safety pick is related to the first one. All that cloud-driven revenue? Much of it is recurring revenue, stemming from repeat billing, giving the company a very good idea of what’s coming in from one quarter to the next. Annual subscription revenue for Office 365 and Azure are now on the order of $20 billion and $12 billion, respectively, making the company a service business more than anything else.
Boston Scientific (BSX)
Boston Scientific (NYSE:BSX) makes and markets a variety of medical devices, but perhaps is best known for pacemakers, catheters and surgical devices. If you can name it though, the company probably makes it (or at least makes something like it).
That deep diversity has most definitely taken the edge off of what would have otherwise been an erratic revenue trend, but interestingly, it hasn’t always guaranteed revenue growth. Although other names did, Boston Scientific somehow struggled to escape the impact of 2008’s subprime meltdown.
Once it finally did so in 2014, however, it did so in spades. Granted, it took the acquisition of C.R. Bard’s electrophysiology unit in 2013 and Bayer AG’s interventional business in 2014 — along with a few other deals — to make it happen, but the dealmaking works. Boston Scientific hasn’t failed to grow quarterly earnings since the third quarter of 2015. EBITDA growth has been almost as reliable since 2016.
Perhaps more important to investors, BSX stock hasn’t failed to make a gain of some sort in any calendar year since 2013.
It may be boring, but that’s largely the point.
NiSource (NYSE:NI) serves four million natural gas and electricity customers spanning seven different states, mostly in the northeastern quarter of the continental United States. Its customers, however, know it better as NIPSCO or Columbia Gas.
It is, above all else, a dividend play. The trailing yield of 2.88% is above-average, and the company hasn’t failed to pay a quarterly dividend in over two decades. It’s also a dividend-growth holding. Although it can’t be said it raises it, or even avoids lowering it, from one year to the next, the trailing-twelve-month payout of 80 cents per share is far and away more than the twelve-month payout of 17 cents per share as of 1999. That’s the sort of track record nervous investors flock to when safety appears necessary.
There’s a clincher in this particular case though. Once again, last quarter, NiSource was able to top its earnings estimates in a pricing environment that hasn’t been easy to do it in … much as it has done more often than not since 2016.
Preferred shares of NiSource are also available for more income-minded investors that are looking for more than a short-term safe space to park some money.
Brookfield Infrastructure Partners L.P. (BIP)
It’s a bit of a cheat to buy a fund of several stocks rather than a single stock as a means of securing certainty and stability in turbulent times. But, Brookfield Infrastructure Partners L.P. (NYSE:BIP) is too compelling to pass up, in that it owns some assets that can’t otherwise be owned by the average retail investors.
The company is self-described as “one of the largest owners and operators of critical and diverse global infrastructure networks which facilitate the movement and storage of energy, water, freight, passengers and data.”
Some of its properties include wind and solar farms of TerraForm Global, graphite electrode manufacturer GrafTech and stake in Brazilian logistics outfit VLI, which operates 5,000 kilometers of railroads, six port terminals and eight trans-shipment terminals.
Boring? You bet. Its results, however, and more than exciting to investors in need of something they can rely on. Brookfield goes on to explain “The company’s objective is to generate a long-term return of 12 -15% on equity and provide sustainable distributions for unitholders while targeting annual distribution growth of 5-9%.”
The trailing dividend yield of 4.56% is anything but boring when safety is en vogue.
Consumers won’t find any Mondelez (NASDAQ:MDLZ) branded goods on their local grocer’s shelves. They’ll find plenty made by the brands it owns though. Cadbury, Chips Ahoy, Oreo, Ritz, Wheat Thins and Trident are just some of the labels that are part of the Mondelez family.
Those who know the Mondelez International story well will know the past several years have been tumultuous ones. Revenue has been uneven at best, and income has been even more erratic while the snack food giant buys and sells brands in search of the so-far-elusive mix. It may have finally found it though. Last quarter’s organic revenue, stripping out any currency related impacts, grew 3.7%, leading the company to exceed earnings estimates.
One good quarter doesn’t make a trend, and even if it did, MDLZ stock looks and feels overbought, still up 35% from its late-December low.
That strength, however, actually represents several quarters of forward progress that was overdue following severe price stagnation since late 2015. Analysts are pricing in more slow and steady progress this year and next too. It’s not red hot progress, but it’s growth that’s likely immune to any economic or even market headwind.
There’s never a particularly bad time to own a piece of the world’s biggest retailer. But, when things are looking especially rocky, the fact that Walmart (NYSE:WMT) sells everything from bread to bolts to light bulbs quickly becomes an important business advantage.
Yes, there was a time not too long ago when the company’s sheer size was more of a liability than a benefit. The retailer’s top brass had become so far removed from the front lines they didn’t realize store shelves were sitting empty on a regular basis, and customer service was suffering. And e-commerce? Forget about it.
All of that’s changed of late though, largely under the direction of CEO Doug McMillon, who was named CEO in late-2013. Since he has taken charge, e-commerce revenue has regularly grown by double-digits, and shelf-stocking is happening, as it should. The company has even found that paying its workers just a little more competitively draws out a lot more customer-minded interest in doing the job well.
The end result is a company that doesn’t have to worry about the threat of a short-term or even a long-term headwind. It has lots of what consumers always need, and it delivers it in the way consumers want it.
Investors know it too, remaking it as one of the go-to picks when the broad market starts to wobble.
Berkshire Hathaway (BRK.A, BRK.B)
Finally, although it’s arguably another way of circumventing a decision and punting to the professionals, why not add Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) to the mix when it appears a storm is brewing.
Berkshire Hathaway isn’t completely immune to marketwide trouble, to be clear. It owns a lot of stocks just like most investors, and right or wrong, it faces the same market-related risks.
Nevertheless, by overweighted ownership of a certain kind of stocks — namely cash cows — Berkshire Hathaway’s net asset value somehow seems to be more consistent than the average investor’s portfolio. Adding to that resilience is the fact that many of Berkshire’s holdings aren’t publicly traded entities, leaving the market even less clear on how or why it should re-price BRK stock.
That being said, while some investors may argue that Berkshire has become little more than a glorified index fund, others will lament the fact that it has crossed a line Buffett wouldn’t normally cross, adding 483,300 shares of the e-commerce giant Amazon (NASDAQ:AMZN) to the portfolio last quarter. If the market crumbles, Amazon may well lead the charge.
This is still a very Buffet-like pick though, in that AMZN stock is plenty able to march to the beat of its own drum, shrugging off broad weakness thanks to the sheer strength of its growth story.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.