[Editor’s Note: The headline on this article was corrected on April 8 to clarify that each stock pick has either a high dividend or low debt.]
March was a challenging month on Wall Street as coronavirus uncertainty caused wild swings in the market. But the stock market’s gradual upward climb over the past week has many considering stocks to buy as they start to build positions in April.
It’s worth noting that the volatility in the U.S. stock market likely isn’t over. Plus, many say we may not have seen the bottom yet. As long as the novel coronavirus is still spreading quickly across the world, traders can expect to see sharp declines.
Timing a bottom with certainly is virtually impossible, so it’s probably not worth trying. Coronavirus cases in the U.S. are expected to peak in mid-April, making it a worthwhile time to start building positions.
Safety, quality, and liquidity are the name of the game right now as the length and depth of the recession to come is still a massive question mark.
In a market as uncertain as today’s, choosing stocks with little-to-no debt and ones that offer dividends is a no-brainer. The run on cheap debt over the past few years has created a massive corporate debt bubble that could explode at any time. Those companies who’ve kept borrowing to a minimum are best equipped not only to survive the coronavirus pandemic, but thrive in it.
Stocks to Buy: Facebook (FB)
Facebook is one of the best options when it comes to stocks with low debt because the social media giant has none. While it doesn’t have the same cash hoard that some of its FAANG peers do, Facebook looks like one of the most likely winners in a coronavirus-induced recession scenario.
That’s because Facebook has already established itself as a way to connect amid social distancing measures. The platform is likely to see a massive boost in user numbers over the next few months as more people look to stay connected from inside their homes. The firm’s Instagram, WhatsApp and Messenger services are also going to see a boost in usage.
Of course, Facebook won’t make it through the current environment unscathed—the firm will still feel the burn of a pullback in advertising spend that comes with reduced consumer spending. But that’s something the entire industry will face and without debt to service, Facebook looks likely to cope well with that headwind.
Google (GOOG, GOOGL)
While Facebook has no debt, Google-parent Alphabet is actually my number one pick among low-debt stocks. That’s because although Google does have a modest debt obligation on the books, the firm’s cashflow is more than strong enough to handle it. The firm has a debt to equity ratio of 2.26, suggesting leverage isn’t a hurdle for the internet giant.
What makes Google a great all-around play in today’s environment is that on top of low debt, the firm also has a lot of cash at hand. The company has saved $90 billion in cash that will come in handy as its competitors start to struggle with liquidity issues.
Google’s superpower during the oncoming recession will be its massive cash hoard, because it will allow the firm to invest in research and development while others are simply trying to keep the lights on. That should give Google a leg up when it comes to some of its future bets like autonomous driving.
Another place to look for stability in a turbulent market is dividends. But finding yields you can count on right now is a difficult task considering many firms are slashing dividend payments in order to cope with the economic slowdown. However, firms like 3M look likely to keep up their payments no matter what happens next.
3M has been at the top of investors minds recently because the firm makes the protective masks healthcare professionals need to prevent coronavirus infections. That’s definitely going to provide a demand windfall in the weeks ahead, but it’s not the only reason 3M is one of the best stocks to buy in today’s market.
Aside from producing necessary goods, 3M is also committed to paying dividends. It’s one of only a handful of companies that has been raising its dividend payments for the past five decades. That suggests that the firm will continue with dividend hikes as long as it can. Cutting the dividend is likely an absolute last resort.
3M’s dividend payment is relatively juicy at 4.26%.
Lockheed Martin (LMT)
Lockheed Martin is a defensive play for several reasons, but chief among them is the firm’s stable, reliable revenue streams. As a defense contractor for the U.S. government, Lockheed’s backlog of orders totals $144 billion including both its F-35 warplanes and its missile and missile defense business. That offers investors a level of stability that’s really only available among government contractors.
Plus, with odds still on Donald Trump to be elected president this year, investors can be confident that government defense spending won’t take a hit in the near future. Even if likely democrat candidate Joe Biden takes office, his more moderate policies don’t suggest any major disruption to the defense industry.
Lockheed’s dividend isn’t as large as 3M’s at 2.6%, but it’s dependable. The firm’s payout ratio of 41% means Lockheed is more than capable of continuing to pay investors even if economic conditions worsen.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.