SPECIAL REPORT The Top 7 Stocks for 2024

The 3 Best Safe Stocks to Buy Now: September 2023

Advertisement

  • Even though the stock market is running higher again, investing in safe haven stocks in the event of a fall is a smart strategy.
  • Cardinal Health (CAH): The market is giving investors a good entry point into this solid, growing drug and medical device distributor.
  • Mastercard (MA): The payment processor has fewer worries than most in the event of a recession because it does one thing, and does it well.
  • Exxon Mobil (XOM): The integrated oil and gas giant is a safe bet in a recession because it has such low break-even costs.
Safe stocks - The 3 Best Safe Stocks to Buy Now: September 2023

Source: Shutterstock

Summer is unofficially over, but what a difference a year makes. The S&P 500 lost 19% in 2022 yet has rallied 17% higher since the end of July. And if you look at how far the popular index has come from its lows, up 26%, that constitutes a bull market run to many. But it also means it’s time to add some safe stocks to your portfolio.

It’s easy to say the good times will continue to roll, and there is some historical precedence to back that up. Bull markets tend to be measured in years, while bear markets typically end in months.

But the Federal Reserve is warning there is a 66% chance of recession coming in H2 2023. Borrowers have to begin repaying their student loans this month. That could take a big chunk of discretionary spending out of the hands of consumers.

Coupled with the fact that most of the benchmark index’s gains result from the Magnificent seven tech stocks’ strong performance, the landscape might not be as rosy as it appears.

That’s why you should consider the following three safe stocks to buy. They’re massively profitable companies and have been through numerous business and economic cycles, so they’re time-tested stalwarts. These should give you confidence to buy them today to protect your portfolio for the rest of the year and beyond.

Cardinal Health (CAH)

Cardinal Health (CAH) sign with bushes in front of it
Source: Shutterstock

The market is giving investors an excellent entry point into drug distribution and medical device supplier Cardinal Health (NYSE:CAH).

California Blue Cross announced it was unbundling its pharmacy benefits management (PBM) service and giving Amazon (NASDAQ:AMZN) and Mark Cuban’s Cost Plus Drugs part of the business. Amazon will handle the mail order; Cost Plus Drugs will get the generic drug business. Drug distributors, including Cardinal, Cigna (NYSE:CI), and McKesson (NYSE:MKC) all fell in response. So did CVS Health (NYSE:CVS).

Yet analysts say the reaction was much ado about nothing. Mail-order prescriptions have not unseated walk-in pickup to the extent expected, and the changes announced don’t really affect Cardinal at all. Its business is still intact, sound, and growing.

Cardinal is one of the largest drug and medical product distributors in the country. It serves nearly 90% of U.S. hospitals, over 60,000 U.S. pharmacies, and more than 10,000 specialty physician offices and clinics. Most of its money comes from the pharmaceutical business (93%), where strong demand for branded and generic drugs helped boost sales by 13% last year. It expects similar growth in fiscal 2024.

The drug and medical device maker also pays a healthy dividend yielding 2.3%. Cardinal has raised the payout every year for 38 years, making it a Dividend Aristocrat. Shares trade at 13 times next year’s earnings estimates, a fraction of its sales, and at a bargain basement 9 times the free cash flow it produces.

It’s a safe stock for troubled times and a growth company for good times, too.

Mastercard (MA)

A close-up shot of Mastercard credit or debit cards.
Source: Alexander Yakimov / Shutterstock.com

Even if the economic data point to a slowdown, Mastercard (NYSE:MA) will still do fine. It is a credit card issuer that focuses almost wholly on payment processing. It doesn’t get into the lending side of things. That means Mastercard remains directly unaffected even if consumers default on their credit and loan payments.

Certainly, the lower spending levels that occur in a recession impede Mastercard’s trajectory. Yet, as noted previously, economic expansion tends to far outpace contraction, so the payment processor’s overall long-term outlook is still positive.

Since it doesn’t need to set aside contingency pools for loan losses, it has effectively lowered its risk profile. That allows it to rebound faster. It’s one of the reasons Mastercard’s 10-year operating margins handily exceed 50%. Mastercard is also the no. 2 payment processor in the industry, the leader Visa (NYSE:V).

The market does recognize its superior safety. Mastercard stock is at an all-time high and not cheap by traditional metrics. Yet trading at 39 times trailing earnings puts it about midway in where it has been valued over the past decade, making it one of the best safe stocks to bet on.

Exxon Mobil (XOM)

Exxon Mobil logo outside of a corporate building
Source: Harry Green / Shutterstock.com

Integrated oil and gas giant Exxon Mobil (NYSE:XOM) rounds out this trio of safe haven stocks. Fears of peak oil failed to materialize, and demand for fossil fuels continues unabated.

Russia’s invasion of Ukraine and Western Europe’s insistence on forcing renewal energy to the forefront are wreaking havoc on its economy. Consumers face some of the highest prices ever for energy. Many now face the prospect of freezing to death during winter as they try to conserve heat to save money.

Even Wall Street is on board with Exxon’s growth potential. No analyst rates the oil stock a sell. The best they can muster is a neutral. Most call it a buy, and with good reason.

Brent crude is at $88 a barrel, up from the $70 range back in July. West Texas Intermediate goes for $85 a barrel, 27% higher than in June. Saudi Arabia cut an extra 1 million barrels from its production in July. Exxon’s breakeven price on oil was $41 per barrel in 2022. It is on a path to reduce that to $30 by 2027.

Exxon’s refining margins are also improving substantially, and fuel sales have increased. Last year, of course, was a record-breaking year in terms of profits. 

The stock trades at nine times trailing earnings and its free cash flow. Both are generally very cheap but also at some of the lowest levels Exxon Mobil has traded at over the past decade. That makes it a safe stock to buy at these prices.

On the date of publication, Rich Duprey held a LONG position in CAH and XOM stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


Article printed from InvestorPlace Media, https://investorplace.com/2023/09/the-3-best-safe-stocks-to-buy-now-september-2023/.

©2024 InvestorPlace Media, LLC