It’s impossible to avoid risk entirely when you are investing in stocks, but there are definitely certain areas of the market that offer more safety and less volatility than others. Safer companies typically have consistent profitability over the years, strong competitive advantages, a lack of cyclicality, and a history of dividend growth. These slow and steady gainers can help you generate substantial returns over the long term without putting your portfolio at risk of massive drawdowns, which is why they are ideal for conservative investors.
Given how volatile equity markets have been in 2022, it makes a lot of sense to consider adding shares of stocks that are perceived to be “safe”. It just so happens that many of these lower volatility stocks have been outperforming the market, which tells us that investors are flocking to low-volatility investments at this time. If you need a reminder of the benefits of conservative stocks, take a look at just how far some of the leading growth stocks have fallen from grace.
That’s why we’ve put together the following list of the top 3 safe stocks for conservative investors. Let’s take a deeper look below.
Costco Wholesale (NASDAQ: COST)
When it comes to investing conservatively, finding businesses that are market leaders and that will be able to generate sizeable profits in any economic environment is usually the recipe for success. That’s why Costco Wholesale stands out as a safe pick. The membership warehouse giant had 815 stores worldwide at the end of its fiscal 2021 and offers investors a rock-solid business model that helps the company retain millions of loyal customers year after year. Part of what makes Costco so special is the way that the company concentrates its buying power on a select number of items, which in turn allows it to take advantage of purchasing leverage and pass on savings to members.
Costco shares have been outperforming in a big way over the last year, and although shares are richly valued at this time it’s still the ideal buy-the-dip stock for long-term investors. The company recently reported Q2 comparable sales growth of 14% and Q2 EPS growth of 36%, and although inflation could eat into operating margins it looks like another big earnings year is on the cards. Keep in mind that if the economy enters recession territory, more people will be looking to save on their everyday purchases by shopping at Costco, which makes this a safe stock amidst a lot of uncertainty.
Coca-Cola Co (NYSE: KO)
Consumer staples are a great area of the market to look at for safe stock picks, and Coca-Cola stands out as one of the strongest options in the sector. Shares of the beverage king are hitting new all-time highs in a mixed tape, which speaks volumes about why this is such a quality name to consider. As a leading producer of soda, juices, and ready-to-drink teas and coffees, investors can count on Coca-Cola to generate stable earnings quarter after quarter, which in turn helps the company support an attractive dividend payout. The stock currently offers a 2.72% dividend yield, while the company recently boosted its annual payout by roughly 5%.
Consistency is key for conservative investors, and the fact that Coca-Cola is a dividend king should particularly be reassuring. This is also a safe pick considering that the company is about 3 times as large as its next-largest competitor in terms of volume, which means it’s difficult to imagine Coca-Cola losing its market-leading position anytime soon. The bottom line here is that when volatility is on the rise and investors have unanswered questions about where the economy is heading, this stock tends to outperform, making it a great option for conservative investors to consider.
Pfizer (NYSE: PFE)
Biopharmaceutical companies like Pfizer are another fantastic option for conservative investors to consider, as it’s a company that generates over $50 billion in annual sales regardless of what’s going on in the world. Oncology and immunology drugs, treatments for rare diseases, and vaccines make up a diverse product portfolio that investors can count on for the long term, while Pfizer also offers some earnings growth potential given its promising pipeline of new drugs.
All of this adds up to a great pick for almost any portfolio, and with shares trading at an attractive 7.35x forward earnings, it’s hard to find many downsides to owning this company for the long term. Pfizer is also a safe pick thanks to the company’s 3.01% dividend yield and the fact that the company’s underperforming Upjohn business has been spun off. The company posted EPS growth of 96% in 2021 largely due to COVID-19 vaccine revenue, and if Pfizer reinvests a large portion of its earnings to make acquisitions and work on its pipeline it could lead to even more upside for long-term shareholders.
Costco Wholesale is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.
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