- Visa (NYSE:V) — Current headwinds are set to subside in coming months
- Citigroup (NYSE:C) — Rising interest rates help banks while the market is too negative on Citi in particular
- Home Depot (NYSE:HD) — Profit should gain from fear around rising rates and the home improvement market
- Ecolab (NYSE:ECL) — Dominant sanitation and hygiene company has underappreciated economic reopening angle
- Cboe Global Markets (BATS:CBOE) — Rising market volatility will benefit this exchange operator
- Colgate-Palmolive (NYSE:CL) — Traders have punished Colgate sufficiently for short-term inflationary pressures
- KeyCorp (NYSE:KEY) — Cheap bank with an attractive dividend yield
Market volatility is up dramatically to start 2022. The major market indexes dove in the first quarter of the year before making a respectable rebound at the end of March. However, April has started off with another round of selling. Sectors that used to lead the market, such as technology, are now dramatically out of favor. This leaves some investors wondering what sorts of safe havens are left in the market.
One way to play this environment is by doing a deep dive through the S&P 500 index. There are plenty of stocks to buy which can profit from these less certain conditions. One stock to buy, for example, literally earns more money from rising market volatility. Also worth a look is at a play on the S&P 500 Low Volatility Index, through an exchange-traded fund like the Invesco S&P 500 Low Volatility ETF (NYSEARCA:SPLV).
And numerous others have a stronger market position than traders realize, or are set to benefit from changing macroeconomic conditions. Here are seven S&P 500 stocks to buy for April that will fare well despite the more challenging economic and political backdrop that we face today.
|CBOE||Cboe Global Markets||$115.83|
S&P 500 Stocks to Buy: Visa (V)
Visa stock has had a wild ride over the past year. The usually stable payments company has seen all sorts of shocks over the past 12 months. Last year, traders dumped the legacy payments companies such as Visa thanks to threats from disruptive fintech companies such as Block (NYSE:SQ).
While the fintech threat has largely eased, that was quickly replaced with other headaches. The omicron variant of Covid-19 delayed economic reopening, hitting high-margin international credit card transactions in particular. This year brought another setback, as Visa pulled out of the Russian market given the sanctions there.
None of these blips will matter to Visa’s long-term trajectory, however. Analysts still see Visa growing earnings at around 18%/year compounded over the next three years. That makes the current 30x forward price-to-earnings ratio look attractive, especially since V stock historically often trades closer to 35x-40x earnings.
Citigroup has a reputation for being a troubled bank. Over the decades, the bank has gotten into all sorts of messes, ranging from bad loans in Mexico to massive losses during the financial crisis, along with many other mishaps. It’s understandable why investors have an aversion to Citigroup as an investment.
However, it’s been 13 years since the financial crisis now, and Citigroup has turned the corner. Its key metrics, such as return on equity (ROE) have improved sharply in recent years. Citigroup has pulled out of a lot of marginal international markets while emphasizing its focus on areas where it performs best. Combined with some discipline on the cost side, and Citigroup has become significantly more profitable.
Yet, Citigroup shares are near the lowest valuation ratio of the major American banks, and C stock is selling at 52-week lows. However, the market is much too negative.
C stock is trading for less than 8x forward earnings and is paying a 4.0% dividend yield. As investors realize that Citigroup has fundamentally improved, its valuation should close the gap with other large American banks.
S&P 500 Stocks to Buy: Home Depot (HD)
Anything and everything related to the housing market has been getting pummeled over the past quarter. Interest rates are surging. The headline 30-year fixed mortgage rate average recently topped 5% for the first time in ages. Companies such as homebuilders and mortgage brokers are seeing their share prices fall through the floorboards. Yet, that’s all good for Home Depot.
That’s a totally understandable reaction. And it might be the right one for companies tied into to new home market. However, the panic selling in names such as Home Depot and Lowe’s (NYSE:LOW) seems overblown. Home improvement retailers are influenced by the whole lifecycle of a house, rather than just the initial sale of a home.
Sure, new home sales may decline sharply given the surge in mortgage rates. However, don’t count on people to stop maintaining and repairing their appliances, garages, gardens and so on simply because interest rates are up a lot.
HD stock is down almost 30% year-to-date, which puts it at less than 20 times forward earnings. That’s a bargain for this world-class retailer.
Ecolab is the world’s leading company focused on hygiene and sanitation at an institutional scale. The company has a tremendous range of businesses. These include things such as pest control, water treatment, restaurant sanitation, hotel cleaning and laundry, and cleanliness and hygiene in factories.
Ecolab is by far the leading player in the industry, with five times of the market share of its next closest rivals. This gives it incredible market power, as it is one of the very few options that a multinational firm can pick which can service all its locations anywhere across the globe.
Contrary to expectations, Ecolab was actually a loser from the Covid-19 pandemic. That’s because the company has extensive business with firms such as hotels, restaurants, and cruise lines which were closed for much of the past two years.
As these return to normal volumes of business, Ecolab should enjoy double-digit earnings growth over the next few years. In the meantime, ECL stock is back at 2019 levels after its recent tumble related to short-term supply chain issues.
S&P 500 Stocks to Buy: CBOE Global Markets (CBOE)
CBOE Global Markets operates various stock markets and options exchanges. The company is highly diversified, with no individual product line accounting for more than a quarter of its overall revenues.
That being the case, investors heavily associate CBOE with volatility, since it operates the Volatility Index (VIX) that many traders use to hedge their market exposure. When the market tumbles, VIX explodes higher, making it an interesting asset to operate. When trading volumes on the VIX increase, that means more money for CBOE. Other lines of business, such as option volumes on individual stocks and stock indexes also tend to rise during periods of market volatility.
This makes CBOE stock an intriguing pick during a period of elevated market volatility. CBOE stock has drifted lower lately, however it is likely to report higher earnings thanks to the rise in market volatility. This could lead to a quick comeback for CBOE’s share price.
Colgate is one of the staples companies that has ended up in a bit of an awkward position now. The company enjoyed strong sales in 2020 as people stocked up on toothpaste and cleaning supplies during the pandemic. Since then, however, sales have come in soft as demand simply couldn’t keep up with that record pace.
Now throw in inflation and supply chain issues on top of that, and we’re past the peak for many such consumer staples companies. For investors willing to look past another year of so-so results, however, Colgate’s future looks fine.
CL stock is trading for around 23x this year’s estimated earnings, and 21x next year’s anticipated figure. That’s not bad at all for a high-quality defensive staple stock such as this one. The company also offers a 2.5% dividend yield, and increases its dividend regularly. For investors wanting a safe harbor from current market volatility, Colgate shines bright.
S&P 500 Stocks to Buy: KeyCorp (KEY)
Cleveland-based KeyCorp is an interesting large regional bank. Its three largest states of operation are Washington, New York and Ohio. That’s quite a broad footprint and has arguably stopped the bank from achieving more synergies in terms of branding and cost control.
That said, KeyCorp’s struggles over the past decade are more than reflected in the share price, with KEY stock selling at just nine times forward earnings.
Meanwhile, there are some unique wrinkles to the business which could make it stand out in the current economic environment. For one thing, KeyCorp has investment banking services and specializes in individual lines of business such as lending to renewable energy firms.
These should have strong tailwinds in the current economic and political environment. It’s also good for net interest margins, and this sort of specialized commercial lending tends to benefit from higher interest rates more quickly than traditional home mortgages.
On top of that, KeyCorp has a large asset management business with around $45 billion of assets under management. Typically, these sorts of operations see their profitability expand during periods of rising interest rates. All that’s to say that KeyCorp has been viewed as an underperforming bank, but economic conditions are now aligning to make it stack up much better against its peers in 2022.
On the date of publication, Ian Bezek held a long position in V, ECL, and CBOE stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.