To say that 2020 was a surprising year would be the understatement of the century. Aside from the novel coronavirus pandemic, the response in the international markets has been stunning. Ordinarily, you’d think that they’d crumble under the severe weight of the global health crisis. Yet we’ve seen remarkable records, which begs the question: are safe stocks to buy a completely irrelevant topic?
To be honest, it seems like it. For instance, the technology-heavy Nasdaq Composite index gained nearly 43% last year. Of course, the benchmark S&P 500 started 2021 standing atop a record closing high. One of the biggest catalysts has been the introduction of new traders to the market. With white-collar employees working from home, many sought exciting growth names, not safe stocks to buy.
But how long will that catalyst last? Our own Matt McCall gave ten bold predictions for 2021. In his second prediction, McCall believes that money sitting on the sidelines – to the tune of $4.5 trillion – will make its way to the equities sector.
With interest rates near historic lows, investors are making virtually nothing sitting in cash. Indeed, real interest rates – that is, factoring out inflation – is negative, which penalizes cash holders.
On the surface, this doesn’t appear to support the case for safe stocks to buy. However, if you compare the impact of real negative rates toward the S&P 500 during the immediate aftermath of the Great Recession and the early Covid-19 months, you’ll recognize the lack of effectiveness of negative rates. Between November 2011 to November 2012, the real interest rate went negative and declined by 0.774 percentage points while the S&P 500 gained 13.6% over the same timeframe.
Now, look at the period between January to August 2020: from the time the real interest rate went negative to the bottom, the percentage point loss was 1.0481. Yet the S&P 500 only went up 8.5%. That may be a clue that monetary policymakers’ tools are losing effectiveness. Frankly, I believe this is a clear sign as any that investors ought to look into these safe stocks to buy.
- Walmart (NYSE:WMT)
- Dollar General (NYSE:DG)
- York Water (NASDAQ:YORW)
- Microsoft (NASDAQ:MSFT)
- Amazon (NASDAQ:AMZN)
- Domino’s Pizza (NYSE:DPZ)
- Netflix (NASDAQ:NFLX)
- CVS Health (NYSE:CVS)
- Innovative Industrial Properties (NYSE:IIPR)
To be 100% clear, so-called safe companies will probably not spare you from volatility if we have a market crash. Therefore, a cautious approach still applies until we have evidence to justify a full risk-on attitude. However, if you’re going to ride equities no matter what, these safe stocks to buy offer a more reasonable risk-reward profile.
While debating in my mind which company should stand atop this list of safe stocks to buy, I initially wanted to go with Home Depot (NYSE:HD). I don’t think Home Depot gets as much appreciation for its service to the local community, both in terms of keeping the lights on during all kinds of disasters and providing an income for many hard-working Americans. Nevertheless, I went with Walmart and WMT stock.
By all means, if you want to go with HD, there are plenty of reasons to do so in this environment. However, if I’m reading the economic tealeaves correctly – and that’s subject to debate, obviously – then it’s likely better to go with WMT stock. The thing is, Home Depot is largely tied to the home improvement and repair industry while Walmart covers myriad needs.
From groceries to basic healthcare to consumer goods (durable and discretionary non-durable), Walmart has you covered with everyday low pricing. Plus, with its many convenient locations, WMT is going to be difficult to avoid if the smelly stuff hits the proverbial fan.
Dollar General (DG)
In the movie, The Wolf of Wall Street, Jordan Belfort gave a classic, oft-recited line: “Let me tell you something. There’s no nobility in poverty. I’ve been a rich man and I’ve been a poor man. And I choose rich every [uh, reproductive] time.” And that’s probably because if you don’t have much money, you must shop at Dollar General.
I’m just kidding. One of the crazy things about dollar stores is that you can find several useful products for a buck that work just as well as similar products sold at a premium (at places like Walmart). For instance, I bought a can opener at a Dollar Tree (NASDAQ:DLTR) and it works even better than the brand name ones that I’ve purchased – it still lasts, which is more than I cay say about the branded versions. Thus, DG stock isn’t necessarily tied to low-income customers.
However, we could see an influx of economic pain. A clear example is the personal saving rate, which is still extremely elevated. That tells you that people aren’t spending as much money because they’re uncertain about tomorrow. It’s cynical, but DG stock is an excellent play in your portfolio of safe stocks to buy.
York Water (YORW)
None of us knows what’s going to happen next. But if you’re feeling hesitant about the disconnect between Wall Street and Main Street but don’t want to stay in cash, you may want to choose proven safe stocks to buy. And there’s really no other company which is more proven to last than York Water.
As a utility firm specializing in our most precious resource, York Water has obvious relevance. But the biggest catalyst favoring YORW stock at this hour is its history. Incorporated on Feb. 23, 1816, this company has gone through the Civil War and both World Wars, along with the typhoid outbreak of 1897 and the drought of 1910. Indeed, York is one of those companies that makes everybody feel young.
Better yet, it’s still paying a dividend and that doesn’t look to abate anytime soon. It’s in an elite, exclusive field as the only American company that has paid consecutive dividends for over 200 years. With that kind of track record, the Covid-19 crisis may not stand a chance.
During an economic crisis, the technology sector can be a questionable arena to dig out safe stocks to buy. On one hand, there’s the argument that tech enhances our lives and makes us more productive. But on the other end, many people and entities find themselves priced out from leading innovations.
However, if you’re dead set on this market segment, then I’d go with Microsoft. No, MSFT stock isn’t going to make you rich. In an environment where people are seeking out 10, 20, 30, 40, 50, 60, yes even 100 times returns, Microsoft is probably at best a 1.22-times investment on average. But on the flipside, it’s probably not going to make you broke while you chase those “FIRE” dreams.
As well, MSFT stock is tied to so many needs. In the chance that we have an extended duration of Covid-19, Microsoft Teams has enabled efficiencies in work-from-home protocols. For the gig economy, its Software as a Service programs are simply indelible. And it’s levered to contactless home entertainment via Xbox. Not sexy but that’s not what safe stocks to buy are about.
As a viable idea among safe stocks to buy, Amazon is perhaps the most controversial inclusion on this list. While it has sparked the e-commerce revolution that we’re presently seeing (and enjoying, let’s be real), it’s come at the cost of small businesses. AMZN stock is really what happens when capitalism runs amuck and let’s also be real about this – Americans will never let go of their capitalist ethos.
I believe this is exemplified by how former Democratic presidential candidate Andrew Yang was treated – by his fellow liberal Democrats! Here’s someone who wanted to inject a trickle-up economy rather than a trickle-down economy. While I love former President Ronald Reagan, he was wrong about his latter policy: when you give money to rich people, they don’t necessarily inject it into the American economy.
But low-to-middle income people? They have no choice but to inject that money into the local, domestic economy. And then whatever money they do earn from working can be used for profitable business ventures. It made too much sense, which is why America gave Yang the middle finger … until everyone wants a stimulus check!
Still, I’m afraid it’s going to be business as usual moving forward. That means Amazon will continue to vacuum clean small businesses and AMZN stock will continue rising higher.
Domino’s Pizza (DPZ)
Years ago, Domino’s Pizza hardly would have been classified as one of the safe stocks to buy. Instead, the brand gradually lost its loyal customers as the quality of the product degraded. However, the company sparked one of the most remarkable comebacks in modern business history. Definitely, that deserves kudos but that’s not the reason why I’m eyeballing DPZ stock.
Instead, I have a far more cynical (perhaps twisted) reason why I believe Domino’s will be attractive for 2021. During the Great Recession, fast-food eateries became hot financial commodities. Indeed, The Guardian described Domino’s as the “credit crunch dinner.” That’s absolutely brilliant!
But it also makes sense. During downturns, all kinds of vices are in demand. And fast food provides cheap comfort, something that will benefit DPZ stock in case we suffer economic hardship.
Moreover, if the coronavirus pandemic worsens, major pizzerias have demonstrated resilience due to their pivot to contactless services. I’ve tried similar services and it works like a charm. Therefore, I believe this is a safe play no matter what comes around this year.
Fundamentally and fortuitously, Netflix has been one of the best investments of 2020. Of course, well before the pandemic struck, NFLX stock soared higher as the underlying platform brought quality original content to the masses, all for a ridiculously low price. Honestly, the corded competition didn’t stand a chance.
But with the present crisis, Netflix made even more sense. Primarily, the impact to live sporting events made paying expensive traditional TV subscriptions unpalatable for both businesses and households. True, sports have come back, which will invariably attract back those viewers. But will this be enough to save corded TV? I’m not sure but one thing is for certain: NFLX stock has benefited from free organic marketing.
Moving forward, it’s going to be a tough ask for consumers to go back to the cord. While sports is huge, it’s not very important in the bigger picture. Further, with physical entertainment options like movie theaters being a question mark, NFLX is probably one of the safe stocks to buy. People still want their entertainment, but they don’t want to pay an exorbitant price anymore.
CVS Health (CVS)
Perhaps one of the most frightening but underappreciated occurrences during this pandemic has been the temporary loss of many 24-hour retailers. Personally, I find comfort in places like CVS Health, where many of its stores are open all day and all night, just in case something happens. And that something usually happens at the most inconvenient time, which cynically has driven the case for CVS stock.
As an essential service, CVS Health has clearly positive implications during this crisis. Furthermore, management has integrated changes to accommodate the new normal, such as curbside and in-store pickups at select locations. That helps keep the traffic moving while minimizing the potential for spreading the SARS-CoV-2 virus.
Better yet, CVS stock may benefit in the post-pandemic era in that there may be an emphasis on self-care products. For instance, there’s evidence to suggest that recessions have a negative impact on physician visits. Logically, this isn’t great for the healthcare industry in general. But it could also suggest that people will do whatever they can to avoid expensive medical checkups, which may boost CVS’ profile.
Innovative Industrial Properties (IIPR)
In all likelihood, Innovative Industrial Properties is going to be the riskiest of the safe stocks to buy on this list. As the leading provider of real estate capital for the medical “botanical” industry – you know what I’m talking about – IIPR stock is not for every conservative investor. However, you don’t want to treat this like any other investment on botany.
Contrary to its peers, Innovative Industrial has provided strong, generally consistent returns over the years. In large part, this is because the company is a real estate investment trust that facilitates and nurtures the industry rather than the plants themselves. This means IIPR stock is mostly an indirect play on the green stuff, which has been a smart move for both company and stakeholders.
Moving forward, I believe that Innovative Industrial will benefit from an attitude shift toward “natural” therapeutics. Yes, most Americans favor legalization. But with a possible economic downturn, many will probably turn to alternative products to address medical conditions.
With legalization gaining momentum, more people will be exercising their freedom to try marijuana for myriad conditions. That’s something to consider if you do want to gamble a bit with stocks to buy.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.