With the economy and the stock market not fully out of the woods, my suggestion is to focus on the safest stocks at the moment. With the most recent statements from Federal Reserve Chairman Jerome Powell suggesting that interest rates will keep rising, and that a “Fed pivot” isn’t just around the corner, the overall market’s strong performance over the past month could give way to another broad market sell-off.
That in mind, now is the time to cycle back into safe stocks. Offering lower volatility, steady dividends, and the potential for gradual appreciation, these seven safest stocks could also receive a short-term lift, if today’s “risk-on” investors seek safer harbors.
|PG||Procter & Gamble||$139.21|
Shares of Hershey (NYSE:HSY) have continued to perform strongly. Shares stayed in the green during 2022, as HSY’s underlying business continued to “crush it,” despite challenges such as inflationary pressures. So far in 2023, HSY stock has continued to perform well, even as investors opt for the riskiest stocks rather than the safest stocks. However, if sentiment soon changes again, Hershey may not necessarily join in on the sell-off. In fact, if the company continues reporting strong earnings growth, as it did in its latest quarterly results, shares could keep climbing higher.
Besides appreciation potential, and very low volatility (HSY’s beta, or volatility compared to the overall market is 0.35). This stock also provides investors with a steady, growing dividend (1.71% forward yield). The company has raised its payout by an average of 8.74% annually over the past five years.
Lockheed Martin (LMT)
Lockheed Martin (NYSE:LMT) isn’t just a defense stock, it’s a defensive stock as well. With the recession-resistant nature of its business, it’s a high quality stock to buy and hold in all markets. While shares initially pulled back at the start of 2023, shares in this low-beta (0.68) stock are bouncing back.
To some extent, this LMT stock rebound may be happening on the heels of a recent analyst double-upgrade. On Feb. 6, Credit Suisse’s Scott Deuschle raised his rating on LMT from “underperform” to “outperform,” basing his decision to upgrade on factors such as the defense contractor’s rising book-to-bill ratio, a sign of growth re-acceleration.
Shares could potentially move higher in the coming year, in tandem with this expected earnings growth. This safe stock also offers investors steady returns, via its 2.56% dividend. LMT has a 20-year track record of dividend growth.
NextEra Energy (NEE)
It’s no secret that many of the safest stocks are utilities stocks. Yet among scores of choices, NextEra Energy (NYSE:NEE) may be your best bet. Yes, NEE’s beta (0.44) is on par with most utility stocks in the sector. Shares in this Florida-based electric power company also sell at a valuation premium to other major names in the sector.
So then, what exactly makes NEE stock a standout among utilities? That would be its high exposure to the renewable energy megatrend. As InvestorPlace’s Josh Enomoto argued last month, NEE’s clean energy business will keep driving growth, which explains why the stock is a favorite among sell-side analysts.
In turn, continued earnings growth likely means continued dividend growth. While offering a lower yield (2.25%) than peers, NEE has raised its payout by an average of 11.6% annually over the past five years.
The consumer staples sector is another area chock full of safe stocks. PepsiCo (NASDAQ:PEP) is one to consider adding as a safe harbor play. Sure, you may be thinking, why PEP rather than Coca-Cola (NYSE:KO) stock?
Yes, PEP stock and KO stock are similar in terms of their main business (soft drink), as well as stock-related metrics like beta (0.57 for PEP, 0.56 for KO) and valuation (mid-20s earnings multiple for both). Still, something else may give PEP the edge in this “cola stock war.”
PEP and KO are each dividend kings, and KO does sport a slightly higher yield (2.93%, versus PEP’s 2.68%). However, raising its payout by an average of 7.4% over the past five years, versus an average of 3.53% for Coca-Cola, a higher level of dividend growth may enable PEP to outperform its longstanding rival going forward.
Procter & Gamble (PG)
Procter & Gamble (NYSE:PG) is a blue chip stock straight out of central casting. A more than century-old business, shares in this household products powerhouse have rewarded investors for generations, with steady dividends and growth.
Even today, owning PG stock can provide your portfolio with solid returns. Investors seeking safety should appreciate its super-low beta of 0.4. Although shares may seem pricey, at around 24.5 times earnings, PG is likely to maintain this valuation, as it continues to consistently grow earnings.
Current sell-side estimates call for earnings growth of around 8.2% next fiscal year (ending June 2024), and 9% in FY 2025. Add in PG’s 2.58% dividend, which has increased in each of the past 66 years, and it’s clear that Procter & Gamble shares are in a strong position to provide investors with satisfactory returns, with much lower volatility than the overall stock market.
Philip Morris (PM)
Among top tobacco stocks, Philip Morris (NYSE:PM) could be the safest in the bunch. Although it trades at a higher valuation, and a slightly higher beta than, say, its former parent company Altria Group (NYSE:MO), the company’s greater level of success so far with going “smoke free” may give its shares an extra degree of safety.
As I argued recently, PM’s IQOS heated tobacco product, plus its recent purchase of smokeless tobacco and nicotine products maker Swedish Match, give it far greater exposure to growing segments of the tobacco industry. This could outweigh any possible declines in its legacy cigarette business, if the smoking rate keeps dropping.
In addition to greater growth potential, PM stock also offers investors a solid dividend (forward yield of 4.97%). This dividend has grown steadily, increasing by an average of 3.62% annually over the past five years.
UnitedHealth Group (UNH)
Selling off recently, on news of a lower-than-expected increase in Medicare Advantage payments this year, UnitedHealth Group (NYSE:UNH) may not be acting like a safe stock right now.
However, when looking on a longer timeframe, UNH stock remains less volatile than the overall stock market, with a beta of 0.69. This provider of health insurance and related services is not only still a safe stock. UnitedHealth Group remains a high-quality growth stock as well.
Analyst forecasts continue to call for UNH to grow its earnings by double-digits over the next two years. Chances are that achieving this will result in a similarly-sized move higher for shares. Along with earnings growth, UNH offers investors the opportunity for dividend growth as well. While its current payout may seem low (1.39%), UnitedHealth has raised its dividend by an average of 17.4% annually over the past five years.
On the date of publication, Thomas Niel held MO. He did not hold (either directly or indirectly) any other 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.