- As market volatility takes hold, these safe stocks to buy can help stabilize your portfolio
- ASML Holding (ASML) – Profitability growth will support a higher share price for ASML
- Comcast (CMCSA) – the market is discounting Comcast’s streaming unit
- CVS Health (CVS) – Cost-controls will lift profits
- Coca-Cola (KO) – strong branding initiatives will spur sales
- Merck & Co (MRK) – Immunology and cardiovascular drug pipeline shows promise
- Micron Technology (MU) – strong margins justify a rebound in this chip giant
- NextEra Energy (NEE) – clean energy demand for solar and wind will improve
As markets are trending lower overall, investors who enjoyed easy gains in the last few years are looking for safe stocks to buy to help protect their gains.
Many are questioning the sustainable returns growth companies offer. The bad news is that with inflation rates accelerating, the central bank must raise interest rates. As a result, the path to booking easy returns from stocks likely ended months ago.
Investors are unwilling to buy companies that have a low or negative margin of safety. Gone are the days of paying a premium upfront for risky companies that do not earn a profit. Instead, cautious investors want safe stocks to buy.
These are companies with a high margin of safety and trade at a discount relative to its fair value. While no stock is a guaranteed positive return, paying for stocks at the biggest discount before everyone else does is one way to manage risk. If market sentiment worsens and the stock falls, investors may add to the position to lower the average price.
|MRK||Merck & Co||$88.69|
Safe Stocks to Buy: ASML Holding (ASML)
In the semiconductor market, ASML Holding (NASDAQ:ASML) posted strong quarterly reports on April 20, 2022.
In the first quarter, ASML posted 11.8% year-over-year revenue growth to EUR 3.5 billion (or almost USD 3.8 billion). Net bookings were EUR 7.0 billion (USD 7.6 billion). Its book-to-bill ratio of 2.0 times affirms the business strength ahead.
ASML will meet the demand by expanding its manufacturing capacity. For example, Chief Executive Officer Peter Wennink said that the demand for microcontrollers is rising. Controllers are used in almost every industrial area, not just mature markets.
Second, the industry needs more silicon. This is driving the demand for ASML’s lithography equipment higher.
Investors are getting ASML stock at a sharp discount compared to its highs reached late last year.
Early last month, Coca-Cola (NYSE:KO) joined hundreds of other companies and suspended its business in Russia.
Its bigger challenge for the year is managing commodity cost inflation without hurting demand.
Fortunately, the company is strengthening its brand through partnerships. For example, to celebrate the one-year grand opening of Super Nintendo World, Coca-Cola Japan released a limited bottle design.
On the employment side, the company donated $1 million to the Technical Colleges System of Georgia’s (TCSG) Commercial Truck Driving Program. The effort will help alleviate the driver shortage that worsened as a result of the Covid pandemic.
The soft drink supplier is not afraid to experiment with marketing. It is embracing the metaverse by presenting a limited-edition drink.
Oana Vlad, Senior Director of Global Strategy, said, “we wanted to create an innovative flavor inspired by the fun of pixels and rooted in the experiences that make games possible.”
The company is assuring its relevance in new markets with this marketing campaign. Investors who are buying KO stock are getting a forward-thinking company.
Safe Stocks to Buy: Comcast (CMCSA)
Markets anticipate streaming services will face eroding margins and lower viewership.
Comcast’s executive compensation package is also a concern. As CMCSA shares underperform, CEO Jeff Shell earned $21.6 million last year, up by 31% from the year before.
Weak stock market conditions may lead to angrier investors questioning the excessive compensation rates.
The management team will need to prove that it can navigate the tougher streaming conditions ahead.
Netflix spent billions acquiring content in the last few years. This attracted more subscribers in the absence of competition.
For now, Comcast Premium is unlikely to underperform. Customers get the service at no additional cost with Xfinity Flex. Other customers may pay just $4.99 a month.
Comcast’s streaming unit does not have much to lose if subscription growth stalls. Netflix raised its subscription rates. This should help Comcast grow its inexpensive service.
CVS Health (CVS)
In the drug store and health plan segment, CVS Health (NYSE:CVS) pays a $2.20 per share dividend.
In March, the company settled opioid claims with Florida for $484 million. It will pay the settlement over 18 years. This removes the uncertainty that limited the stock’s performance.
CVS Health stock may underperform in the near term. In May, investors may set limit prices to catch the stock if prices drop.
The company’s retail segment will face pressure as the result of rising inflation.
On top of that, wage inflation is spreading across the job market. CVS will need to pay staff higher rates to lower the risk of churn.
Fortunately, the company is cutting costs. For example, it will close 900 stores, a 10% reduction, in the next three years. The prudent cost management will limit the staff’s ability to negotiate a higher wage.
Last year, CVS hired a new CEO, Karen Lynch. She will clean up the management team and add top talent. With those actions, CVS will align its vertical chain.
Safe Stocks to Buy: Merck & Co (MRK)
Merck & Co (NYSE:MRK) is one of several drug manufacturers that offers a Covid anti-viral pill. The pill is not perfect but should still add meaningfully to revenue in 2022.
The Food and Drug Administration approved it under the condition that it only be given to patients who have no access to vaccination.
In its cardiovascular pipeline, Merck set an ambitious $10 billion target in sales by mid-2030.
Cardiovascular disease is endemic. Dean Y. Li, a cardiologist, and president of Merck Research Laboratories said that science in this space would continue to advance.
This will give Merck a chance to address an unmet need in treating the disease. Last year, regulators approved Verquvo, a drug developed in partnership with Bayer that treats chronic heart failure in patients who have been hospitalized.
For now, investors will benefit from holding Merck as it realizes revenue growth from its Keytruda immunology portfolio.
Micron Technology (MU)
After posting strong quarterly results last month, Micron Technology (NASDAQ:MU) rallied above the $85 level.
In the days that followed, MU stock slumped despite posting guidance that exceeded estimates. The sell-off likely was related to investors cutting their exposure to semiconductor stocks
In the second quarter, Micron posted revenue of $7.79 billion with earnings of $2.00 per diluted share. The company issued Q3 revenue expectations of $8.7 billion.
Gross margins will rise sharply to 48%, up from 32.9% year over year. On the conference call, CEO Sumit Sadana said that Micron benefited from the launch of two new products: the 1-alpha and 176-layer NAND gates.
Even after factoring in higher operating costs in the third quarter, the CEO expects its NAND business will grow faster than its DRAM business.
Personal and server computers require faster storage devices, a key characteristic of NAND chips. For example, in the data center, solid-state drive revenue will keep improving. Revenue doubled year on year. The momentum will continue.
In the DRAM space, Micron is a leader in DDR5 memory. The computer industry is transitioning from DDR4 to the more expensive DDR5 type. This will result in an upward trajectory for Micron’s profitability.
Safe Stocks to Buy: NextEra Energy (NEE)
It earned 74 cents a share (non-GAAP). For 2022, the company expects its adjusted EPS in the range of $2.75 to $2.85. From 2023 through 2025, it expects growth of between 6% to 8% annually.
By 2025, NextEra will post an EPS in the range of $3.35 to $3.60.
NextEra’s capital expenditure plan will cost around $7.9 billion to $8.3 billion this year. It has a 10-year site plan for solar. In the next two years, the company expects wind energy sources to come online sooner.
In the next 10 months, the company will benefit from its competitive advantages in the space. For example, as it sells more wind units, it becomes more price competitive. To mitigate production risks, the company has strong supplier contracts in both its wind and solar business.
That way, the company will meet its financial targets. This year, NextEra will grow its cash flow. This will allow it to pay down its debt to below 4.5 times debt/EBITDA.
On the date of publication, Chris Lau 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.