If there’s any one theme that supports the concept of safe stocks to buy, it’s ambiguity. At first glance, Federal Reserve Chair Jerome Powell recently clarified that while inflation is finally moving in the right direction, policymakers still have much work to do. Further, relief in rising borrowing costs in the form of rate cuts probably won’t happen anytime soon.
On the other hand, following Powell’s comments last week, the market responded positively. Per CNBC, investors focused on the Fed Chair’s optimistic remarks, such as the “especially robust” consumer spending, along with early signs of a housing market recovery. Still, with the major indices printing soft performances in the trailing month, it may be time to consider steady stocks.
To be sure, there will be a cycle when it’s appropriate to swing for the fences. For now, the below all-weather stocks may be a smarter approach.
Safe Stocks: Procter & Gamble (PG)
One of the easiest names to identify as one of the safe stocks to buy, Procter & Gamble (NYSE:PG) is a household goods giant. What I like here is that it’s about as inoffensive as a company as you can get (aside from whatever political stances it may have). Basically, no matter what happens in the wider economy, you’re going to need common goods like shampoo or toilet paper.
To be fair, P&G suffers some vulnerability from the trade-down effect. In other words, consumers can elect store-brand products as opposed to P&G brands. But without getting too graphic, there’s a noticeable difference in quality between cheapo generic stuff and the branded equivalent. Therefore, I still like PG as one of the steady stocks to add to your portfolio.
As for passive income, P&G isn’t overly generous. Still, it provides a forward yield of 2.45%, better than the consumer staples sector’s average yield of 1.89%. Most importantly, the company commands 68 years of consecutive dividend increases. That makes PG a dividend king.
When it comes to safe stocks, you probably can’t go wrong with healthcare giant Merck (NYSE:MRK). Carrying a market capitalization of around $280 billion, Merck basically benefits from permanent relevance. When health circumstances go awry for individuals, they’re likely going to do what they need to stay alive. And Merck facilitates said opportunity with various powerful and relevant therapeutics.
Now, I acknowledge that shares really haven’t gone anywhere since the beginning of this year. Nevertheless, its underperformance could be a chance to pick up all-weather stocks at a relative discount. For example, the company prints strong operational stats, specifically a three-year revenue and EBITDA growth rate (per-share basis) of 15.4% and 23.9%, respectively. These stats are both well above average for the underlying sector.
For passive income, Merck carries a forward yield of 2.65%. Again, it’s not the most generous yield, though it does beat the healthcare sector’s average metric of 1.58%. Significantly, its payout ratio sits at a very sustainable 34.48%, making MRK one of the steady stocks to consider.
Safe Stocks: Costco (COST)
A membership-only big-box retailer, Costco (NASDAQ:COST) also makes a relatively easy case for safe stocks to buy. Again, because of its membership-only business, Costco caters to a wealthier shopper base. You can dissect the details of demographic comparisons yourself. For this discussion, it’s suffice to say that your average Costco member is much better off than the typical big-box retail consumer.
Fundamentally, this framework should afford COST superior economic insulation. Don’t get me wrong – if the economy really tumbles badly, that’s going to be bad news for pretty much everyone. However, if we’re talking about a rough but survivable landing, investors can have confidence with COST stock.
For example, Costco enjoys a robust balance sheet, with a cash-to-debt ratio of 1.52x beating nearly 73% of its rivals. Also, its three-year revenue growth rate impresses at 14%. In full disclosure, COST doesn’t provide much in terms of passive income (a forward yield of 0.76%). However, it is a strong buy among Wall Street analysts, who anticipate a $582.35 price tag. That implies 9% upside potential.
Monster Beverage (MNST)
Perhaps a bit of an oddity for safe stocks to buy, Monster Beverage (NASDAQ:MNST) carries hidden potential. Yes, I understand that shares have already increased about 29% or so in the past 365 days. Also, beverage companies aren’t the sexiest enterprises available. And if you’re going to invest in this space looking for steady stocks, you might go for the iconic names.
However, Monster resonates with young people. To be clear, I understand that controversies have resulted from this directed marketing. Nevertheless, the broader point is that Monster has a foothold with the younger Millennial and the entire Generation Z crowd. It can continue to leverage this positioning, which is why I’m not terribly concerned about its 42x trailing earnings multiple.
Instead, I’m focused on its three-year revenue growth rate of 15.5% along with its trailing-year net margin of 21.45%. Also, if you want to focus on all-weather stocks, Monster carries zero debt. There’s no dividend here but it is a strong buy among analysts. Further, the average price target lands at $63.71, implying over 11% upside potential.
Safe Stocks: Phillips 66 (PSX)
A downstream energy specialist, Phillips 66 (NYSE:PSX) focuses on the marketing and refining component of the industry’s value chain. Fundamentally, the company should be in prime position to advantage social normalization trends. As you’ve no doubt seen yourself, traffic volume has steadily climbed back toward pre-pandemic norms. While the data isn’t quite there yet, one catalyst could change everything.
While the year of the COVID-19 pandemic was all about remote work, this year, major corporations are focused on returning back to the office. Because companies can now identify what’s actually going on with workers back in their cubicles, those that implement return-to-office policies may see a productivity lift. And that may force corporate peers to respond in kind, especially amid troubling economic circumstances.
Cynically, this is all music to PSX’s ears. And that makes it one of the safe stocks to consider. Lastly, analysts peg shares a moderate buy with a $127.58 price target, implying 12% upside potential.
Admittedly, food manufacturing firm Kellogg (NYSE:K) is a boring enterprise. That’s not just a random pejorative statement. According to TipRanks, K stock carries a consensus analyst view of hold. In addition, this assessment breaks down into two buys, seven holds and two sell ratings. That’s a type of symmetry that I normally wouldn’t celebrate, even if the average price target (of $70.40) implies about 15% upside potential.
Nevertheless, K makes a strong case for safe stocks to buy. First, as a food company, Kellogg benefits from permanent demand. And as a grocery aisle king, Kellogg benefits from the trade-down effect. Put another way, people will choose to buy groceries over dining out during financially troubling times.
Second, Kellogg addresses the popular plant-based meat market with its Morningstar Farms and Incogmeato brands. Finally, the company offers a generous forward yield of 3.92%. As well, the payout ratio sits at a reasonably sustainable 56.07%. Therefore, it’s one of the all-weather stocks to buy.
Duke Energy (DUK)
On paper from a financial perspective, utility giant Duke Energy (NYSE:DUK) may not seem a viable candidate for one of the safe stocks. For instance, the company’s cash-to-debt ratio sits at 0.01x, worse than 95% of its peers. With an Altman Z-Score of only 0.6, Duke – by the underlying formulation – represents a significantly distressed enterprise. It also trades at 55.23X trailing earnings, unfavorably higher than 91% of its peers.
At the same time, I’m more interested in profitability. Featuring an operating margin of nearly 23%, Duke beats out 77.64% of its peers. More importantly, over the past decade, Duke delivered 10 years of net income. Essentially, the utility can get away with a lot because of its natural monopoly. Would-be competitors don’t even bother because of the high barriers to entry. So, Duke does what it does.
On a broader level, the company benefits from millennial migration trends. Primarily, Duke operates in states that young people are moving to, giving it an advantage over other steady stocks. Stated differently, Duke operates where the money is going.
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.