Naturally, as the major indices absorbed the news regarding the Federal Reserve’s upcoming rate hikes for 2022 — and not in a great way — many folks turned to Cathie Wood. A technology investor and the matriarch of Wall Street, Wood commands serious influence. And her words were to not deviate from the course because the truth “will win out.” Still, a slight shift toward boring stocks to buy might help.
According to CNBC, Wood’s ARK Innovation ETF (NYSEARCA:ARKK) lost a fifth of its value on a year-to-date basis since the close of Dec. 17. Under the much often cited narrative of buy low, sell high (or buy the dips in the contemporary parlance) the fallout in tech and other sectors might inspire buying sentiment. While that could be true, it’s also possible more pain is on the way, which bolsters boring stocks to buy.
In an interview with the Wall Street Journal, David Keller, chief market strategist at StockCharts.com, stated that, “Arguably the reasons why stocks have been so strong so consistently are now going away and those conditions are changing.” Some investors — though to be clear, not all — are concerned about the rapid spread of the omicron variant of the coronavirus. The uncertainty hinders growth names but may benefit boring stocks.
But arguably the most important impediment to the once-soaring demand for risk-on assets is the scheduled increase in borrowing costs. As WSJ noted, “Fast-growing tech names have been pressured by the prospect of higher interest rates, which make it less appealing to hold riskier assets.” Therefore, investors should be thinking about reliability and stability, which boosts the profile of boring stocks.
As well, the conspicuous correction could come down to common-sense dynamics. While there’s no upside valuation ceiling in theory for any particular asset, practically speaking, a sector can only go so high before it stalls out. With growth names having enjoyed a blistering season, it’s time to reconsider these boring stocks to buy.
- Lowe’s (NYSE:LOW)
- Allstate (NYSE:ALL)
- UnitedHealth (NYSE:UNH)
- MetLife (NYSE:MET)
- Raymond James Financial (NYSE:RJF)
- Duke Energy (NYSE:DUK)
- AvalonBay Communities (NYSE:AVB)
To be fair, boring stocks alone won’t guarantee you protection if we encounter severe deflation of the equities sector. Further, I think Wood is wise in that you don’t want to make wholesale changes to your strategy. Instead, this article merely presents ideas to consider as we navigate highly variable waters.
Boring Stocks to Buy: Lowe’s (LOW)
For the topic of boring stocks to buy, few subjects are as tedious as home repair and furnishings retailers. That said, the coronavirus pandemic gave Lowe’s Companies a massive boost in relevance. Today, LOW stock is up nearly 55% year-to-date, which is very impressive for this pedestrian firm. And while Lowe’s might not deliver similar returns in 2022 — I’m almost certain it won’t — it can still be surprisingly robust.
True, higher interest rates don’t necessarily support LOW because on paper, increased borrowing costs will make it tougher for people to buy homes. As you know, the blistering rate of real estate acquisitions bolstered shares because sellers had extra incentive to renovate their properties for maximum resell value. And with the bidding wars that erupted, the renovations were money well spent in many cases.
However, the Fed won’t raise rates tomorrow, meaning that for many buyers, this will be the last chance to acquire real estate at historically low interest rates. Sellers may key in on this trend, driving up demand for LOW. If that narrative doesn’t pan out, Lowe’s is an essential business that always enjoys a baseline of demand.
If there was a candidate for boring stocks that are more tedious than home repair, it would be Allstate. I’m not picking on the company per say. It’s just that I can’t imagine people are jumping up out of bed to load up on insurance firms. Still, in the new normal of rising rates, boring is absolutely fascinating.
What investors appreciate about ALL is stability in the face of myriad variables. Indeed, Allstate has already proved its worth. Back when the Covid-19 crisis hit us in early 2020, few people could have imagined how the pandemic would develop. Certainly, the situation didn’t help Allstate as major metropolitan areas became ghost towns on the outside, killing demand for its automotive insurance division.
However, vehicle miles traveled have improved dramatically since last year’s doldrums. Further, as more companies reopen for business, they may recall their workers. Growing evidence suggests that working from home at scale will be less productive. Even before the pandemic, analysts argued (perhaps rather convincingly) that telecommuting employees are less efficient than their in-office counterparts.
This dynamic translates to more people on the road, thereby boosting demand for auto insurance.
Boring Stocks to Buy: UnitedHealth Group (UNH)
For me, anything related to health insurance would justify inclusion into a basket of boring stocks. When I see the terms HMO, PPO, EPO, POS, the only acronym I have in my mind is “WTF.” It’s almost as if you need an insurance plan for your insurance plan, just in case you get the wrong insurance plan.
Anyways, with the disaster that was (and is) the Covid-19 crisis, many people are likely to take their healthcare seriously. Better yet, the American people apparently have the funds to consider ramping up their coverage. According to a Bloomberg report in October of this year, Americans saved up $2.7 trillion in “crisis savings.”
That this money went unspent suggests that households are thinking about the future rather than keeping up with the Joneses. If so, that may bode well for healthcare specialists like UnitedHealth Group. On a YTD basis, UNH gained over 39%. Over the trailing month, shares are up over 11%.
In 2020, UnitedHealth was resilient, enjoying revenue growth of 6.4% against 2019’s top line. This year, it’s poised for another strong outing. This is what you want to see from your boring stocks.
As one of the largest global providers of insurance, annuities and employee benefit programs, by default, MetLife is also one of the world’s most boring stocks you can buy. But as I alluded to earlier, boring is good, especially when you’re facing unknowns.
Even during the week the Fed made its policy announcement, the market initially interpreted the clarification as good news, only to suffer the runs in the following sessions. In this maddening environment, you’re going to want to have something you can depend on.
To be sure, the idea of employee benefit programs runs counter to the sentiment growth for the gig economy. In the past, I’ve written about the serious potential for independent contractors to reshape the working ecosystem. Nevertheless, no narrative is without vulnerabilities. With gig work, it’s not all as glamorous as it may seem on paper. Further, the higher-paying gigs may be extremely competitive.
Therefore, we could see, instead of the Great Resignation, a massive rehiring initiative. Part of that drive stems from independent contractors needing to pay for their own benefits. If inflation still is a concern despite the Fed’s efforts, MET should be one of the boring stocks to investigate.
Boring Stocks to Buy: Raymond James Financial (RJF)
A multinational independent investment bank and financial services firm, Raymond James Financial technically has been one of the more exciting opportunities in a roundabout manner. Thanks to the blistering pace of initial public offerings over the past year (and then some), Raymond James has helped underwrite some of the biggest market debuts.
Moving forward, though, it’s what fundamentally makes RJF one of the boring stocks to buy that may help it sail through choppy seas.
To be fair, financial institutions in general may encounter a mixed situation in a rising interest-rate environment. On one hand, if an institution specializes in lending, these services may command higher profitability margins. On the other hand, funding costs are higher when market rates are also high, per the Federal Reserve Bank of St. Louis.
What I do like specifically about Raymond James, though, is its investment services division. Logically, its clients will want to know how to protect their portfolio as rates rise, which is a completely different paradigm from the super-growth phase that we have enjoyed up until recently. Thus, I think RJF could be a sleeper hit in 2022.
Duke Energy (DUK)
Whenever you’re in doubt about what the market may hold in the future, utilities often represent a solid place to park your money. Usually, the sector doesn’t provide the most thrilling returns. For instance, Duke Energy delivered nearly 15% YTD gains; that’s nothing to scoff at, to be certain but it’s nothing to write home about either.
However, with concerns about how the market will respond to changes in monetary policy, investors ought to take a closer look at Duke. For one thing, bad things happen when people flip the switch and nothing happens. This scenario is even more problematic for those either working from home or running the gig economy.
Second, we may have an extremely cold winter this season, adding to the woes that we’ve already experienced. If weather projections turn out to be accurate, demand for heating services will likely increase, thus boosting DUK stock, if only cynically.
Third, Duke — as is the case with many other boring stocks — pays a dividend. Currently, it has a forward yield of 3.82%, which is above the utilities average yield of 3.75%. That’s another factor to consider as investors may rotate out of risk-on assets in 2022.
Boring Stocks to Buy: AvalonBay Communities (AVB)
Admittedly, it’s debatable whether most folks would consider AvalonBay Communities, a real-estate investment trust specializing in apartment homes, one of the boring stocks to buy. My argument is that the underlying business is nothing groundbreaking: People always need a roof over their heads. As well, AVB has performed very well, gaining over 58% YTD.
Of course, there’s another major sticking point with AvalonBay and the underlying industry. If interest rates move higher, that might deflate some of the air in the housing market bubble. Should that occur, the apartment REIT may lose some business. In order to stay competitive, AVB may have to lower rents on their properties, perhaps sending the share price down.
Then again, it’s also possible that the specter of rising rates may inspire homebuyers for one last surge. That might support these elevated valuations. Also, housing prices tend to move slowly — and it’s not as if sellers are necessarily desperate to unload.
Such a situation sets up an awkward backdrop where millions of folks are too well off to be renting but too poor to own a home. Cynically (and frustratingly), this circumstance could lift AVB stock.
On the date of publication, Josh Enomoto 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.
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.