The incredible regulatory crackdowns we’ve seen in China are big news. What China does reverberates around the world. Let’s be honest, no company is actually completely immune from what happens in China. Finding safe stocks, or those that are less-exposed than others, to this Chinese volatility is what many investors are seeking right now.
Indeed, some companies are better-insulated than others. We think we’ve found seven that certainly fit the defensive category investors are looking for.
As the world economy comes out of this pandemic, there are a number of companies well-positioned to see top and bottom line growth take off. That’s not to say uncertainty is off the table. Far from it. We’re likely to experience a bumpy go, considering the rise of new Covid-19 variants, and other market forces that could derail this reopening thesis.
Indeed, the recent regulatory crackdowns in China have been one of a few contributors to volatility of late. Rising inflation, the risk of sooner-than-expected Federal Reserve tapering, and U.S.-China tensions have exacerbated this market view.
Of course, the recent Evergrande crisis is the main cause of concern for investors right now. Often dubbed China’s “Lehman moment,” questions are whether this massive potential default could spread to global financial markets.
Currently, it appears Chinese regulators have avoided catastrophe thus far, and are likely to come up with a plan to settle the ongoing issues with Evergrande in a way that doesn’t blow up the market. But for now, there are certainly reasons investors are concerned.
That said, let’s dive into seven safe stocks that could provide some reprieve for investors looking at global exposure:
- Johnson & Johnson (NYSE:JNJ)
- PepsiCo (NASDAQ:PEP)
- Bank of America (NYSE:BAC)
- Altria Group (NYSE:MO)
- UnitedHealth Group (NYSE:UNH)
- Regions Financial (NYSE:RF)
- 3M (NYSE:MMM)
Top Safe Stocks: Johnson & Johnson (JNJ)
Johnson & Johnson is one of the most popular global healthcare stocks. A U.S. behemoth, this company has a number of operations around the globe. Viewed as both a healthcare stock, and a consumer staples play, JNJ stock is typically viewed as a defensive stock for those bullish on the long-term growth of the global economy.
While the global economy certainly includes that of China, Johnson & Johnson’s operations are focused primarily on North America and Europe. The company’s status as one of the first companies to launch a successful Covid-19 vaccine has certainly provided a boost of late. Of course, recent news that Covid-19 vaccine boosters would be expanded is bullish for JNJ stock.
However, outside of the company’s healthcare division, its consumers staples business has seen strong growth. This has allowed the company to enjoy a strong balance sheet, and one of the most stable dividends in its sector. This is a Dividend Aristocrat, with a dividend growth track record of 59 years. That’s hard to beat.
Currently, JNJ stock remains approximately 10% off its all-time highs. While not necessarily cheap, JNJ stock appears to be well-priced relative to its growing dividend and growth profile in the years to come. Accordingly, this is a defensive stock with impressive upside right now for those looking for global exposure.
Another consumer staples play, PepsiCo is an excellent choice for investors seeking defensiveness. This company’s focus on the snack food segment has provided rather stable and consistent growth over the long-term. In particular, the company’s Frito-Lay acquisition in years past has diversified this soda brand from its peers in a meaningful way.
As the third-largest food and beverage company in the U.S., investors in PEP stock stand to benefit from a rather large moat around this company. The Pepsi brand remains among the most prestigious globally. Accordingly, investors seeking long-term growth (both in terms of earnings and dividend distributions) have done well owning this stock.
Pepsi certainly has heavy exposure in Asian markets for growth, with China being a key market for Pepsi. The company even announced recent acquisitions to boost its exposure to the growth of China’s economy.
That said, PepsiCo’s diversified business model is one long-term global investors ought to like. This isn’t a company that’s concentrated in one area. Rather, Pepsi is rather strategically globally diversified. From the perspective of a long-term investor seeking a bond-like yield, PEP stock is a great choice.
Top Safe Stocks: Bank of America (BAC)
As one of the largest U.S. banks, and one of the largest globally for that matter, Bank of America is heavily influenced by global macroeconomic trends. Accordingly, BAC stock is one that’s seen some volatility of late on the recent Chinese headlines.
However, investors in BAC stock will note some relatively strong performance as well. In fact, BAC stock is now quickly approaching the highs this stock made prior to the financial crisis in 2008.
Accordingly, it appears the market is pricing in a very low likelihood of any sort of serious market volatility hitting BAC stock. On this point, I definitely agree with the market consensus.
Barring any sort of catastrophic event, BAC stock looks rather solid at these levels. Trading at around 14-times earnings, with a dividend yield of 1.75%, BAC stock remains attractive for investors seeking stable growth and dividend income over time. Expectations are that Bank of America will raise its dividend aggressively in the coming quarters, as the company searches for a place to park its cash.
Much of this has to do with strong recent earnings. The company reported better-than-expected results, with revenue coming in at $22.8 billion, more than $1 billion ahead of analyst estimates. The U.S. economy is running hot, and Bank of America presents a relatively defensive bet on a strong U.S. economy.
Altria Group (MO)
To consider a tobacco stock “safe” requires a certain viewpoint. However, when investors think about safety in terms of portfolio defensiveness, Altria certainly rings the bell.
This cigarette maker still earns a significant portion of its revenue via its cigarette sales, mainly under the Marlboro brand. However, the company is transitioning toward having more of its revenues derived from safer, more health-conscious products.
For those who like the direction the cigarette industry is taking, Altria is certainly an intriguing investment. This is a company that provides investors with a bond-like yield of 8%. You read that right — 8%.
That kind of dividend distribution is likely to smooth out returns over time for investors. The thought of being paid back one’s initial investment in 12 years is appealing to many investors.
While Altria does have exposure to China, it’s unclear if regulatory crackdowns will rain down on the tobacco industry yet. It’s certainly possible that Altria could see some headwinds some time in the future. However, the current environment appears to be one in which targeted crackdowns are the focal point of the administration.
For longer-term investors seeking safe stocks and high-yield equities, MO stock certainly deserves a look.
Top Safe Stocks: UnitedHealth Group (UNH)
Another healthcare-related stock to grace this list is UnitedHealth. One of the largest American healthcare insurers, UnitedHealth is generally viewed as a safe, long-term holding. Investors seeking a core portfolio holding haven’t been disappointed by the long-term returns of UNH stock.
This massive player in the U.S. healthcare system has built a very strong moat around its system. Various politically-inspired headwinds have come up from time to time. However, UnitedHealth remains one of the companies in this sector that has continued to manage these headwinds well.
Despite the rising costs from the pandemic, UnitedHealth has posted surprisingly good results of late. The company’s recent third-quarter results saw Unitedhealth bring in $72.3 billion this past quarter. This revenue number is massive and represents a double-digit increase on a year-over-year basis. For a behemoth operating in a relatively slow-growth space, that’s some impressive performance.
Additionally, earnings per share came in at $4.52, beating analyst estimates nicely by $0.10.
I think UnitedHealth’s unique U.S.-focused exposure to the healthcare sector can be a good and bad thing, depending on which political party is in power and the overall sentiment gauge at a given time. However, given the recent Chinese stock tumble, UNH stock seems like a great place to hide for concerned investors.
Regions Financial (RF)
Alabama-based regional financial service provider Regions Financial is another compelling pick in the banking space. Of course, as a regional bank, this company is much less exposed to international volatility than almost any company.
The company’s recent earnings showed strength in the company’s capital position and provisions for credit losses. Like many of its peers, Regional Financial saw credit losses come in lower than expected, boosting the banks returns.
That said, revenues came in lower than the company expected, along with higher expenses. This bank’s strong regional position and exposure to regional growth in its core markets may offset some of this near-term weakness. In fact, I expect the regional banking sector to do just fine. For defensively-oriented investors, there’s lots to like about this segment.
What I particularly like about Regions Financial right now is the company’s valuation. Currently, investors can pick up RF stock for around 9-times earnings. That sort of multiple is hard to find in the market, let alone the financials space. Accordingly, those with a long-term value mindset may want to consider this stock right now.
Top Safe Stocks: 3M (MMM)
American industrial conglomerate 3M is another stock that can be considered as a low-risk option from a macroeconomic perspective. The company focuses on producing consumer staples, goods which are typically bought in good times and in bad.
3M has been among the more stable safe stocks throughout the pandemic. That said, this is a company that remains well off its pre-pandemic highs. Despite being a key supplier of various personal protective equipment through the pandemic, 3M has seen margin pressures in its core business. Global supply chain issues don’t make for an easy thesis right now for growth-oriented investors.
However, for those with a more defensive mindset, 3M is a compelling company to consider. Given the stability of 3M’s business model, investors are paid a dividend yield of 3.25% to be patient. Considering where bond yields are right now, that’s certainly nothing to scoff at.
Additionally, from a dividend growth perspective, 3M earns gold stars. This is a Dividend Aristocrat, having paid out increasing dividends for the past 63 years. That’s a heck of a long time.
Accordingly, investors seeking excellent risk-adjusted total returns over the long-term have reason to hold onto this company. Growth may underperform other large cap stocks over the medium-term. However, those bullish on the strength of the economy ought to like what 3M is selling.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.