Investing

5 Ultra-Safe Stocks to Own for a Potentially Volatile Fall

Lee Jackson

Published: September 1, 2017 10:10 am

Last Updated: January 12, 2020 8:34 am

The slow trading of late summer is going to come to an end with the Labor Day holiday upon us, and experienced investors know well what that means: The volatile and often turbulent months of September and October are on deck, and for a market that hasn’t had a 5% correction since the summer of 2016, things could get dicey. Toss into the pot the potential for geopolitical situations to unfold, and now is the time to be safe rather than sorry.

One good idea for 24/7 readers is to check your portfolio for gains in big momentum stocks, many of which are very crowded. It may make sense to at least sell half and move those funds to safer, dividend-paying stocks that should hold up better if the market has a seasonal fall sell-off.

We screened the Merrill Lynch research database, and found five ultra-safe companies rated Buy that also have the firm’s best volatility risk ratings. While maybe not the most exciting stocks to own, they should hold up well in a big sell-off.

Colgate-Palmolive

This top dividend payer is a very safe consumer staples play for investors. Colgate-Palmolive Co. (NYSE: CL) continues to deliver solid execution and is one of the best-positioned companies in its sector, given its strong brands in attractive categories, particularly oral care.

Over half of Colgate’s total revenues (52%) are derived in faster-growth emerging economies, and the company maintains leading or near-leading market shares across Brazil, Russia, India and China. While those have slowed over the last year, a pickup in growth could be coming, especially with a very weak dollar making products attractive overseas.

While the second-quarter results were somewhat disappointing, the analysts remain positive and said this after the report:

We expect growth to improve sequentially as one-offs lap and comparisons ease. Fiscal year 2017 estimates are lowered -2c to $2.90 on organic sales -1 point to +1.6%, lower gross margins and higher ad spending, offset by lower SG&A and tax. Reiterate Buy on long-term attractiveness despite near-term challenges.

Colgate-Palmolive investors are paid a 2.23% dividend. The Merrill Lynch price target for the stock is $80, and the consensus target is $75.68. Shares traded Friday morning at $71.70.

Exxon

The world’s largest international integrated oil and gas company remains a top Wall Street energy pick. Exxon Mobil Corp. (NYSE: XOM) explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa, Asia, Australia and Oceania. It also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas, and petroleum products.

The company posted some messy second-quarter results, and Merrill Lynch feels the stock is still an outstanding place for investors to put money now. The team also cites the ability of the company to maintain and cover the cash dividend at lower oil prices as a key positive, and a recent report said this:

Management could do a better job of highlighting unusual items; on review the second quarter met consensus in contrast with a perceived miss. Analysis of operating cash flow suggests Exxon had a second quarter cash break-even of $35 although capex is running 33% below guidance. With $2 billion of free cash in the second quarter before working capital, the company remains a low risk strategic route to reweighting energy portfolios.

Shareholders receive a 4.04% dividend. The $90 Merrill Lynch price objective compares with the consensus estimate of $83.03. Shares were last seen at $76.35.

PepsiCo

This is another top consumer staples stock that fits the bill. PepsiCo Inc. (NYSE: PEP) operates as a food and beverage company worldwide. Its Frito-Lay North America segment offers Lay’s and Ruffles potato chips; Doritos, Tostitos and Santitas tortilla chips; and Cheetos cheese-flavored snacks, branded dips and Fritos corn chips.

The Quaker Foods North America segment provides Quaker oatmeal, grits, rice cakes, natural granola and oat squares, as well as Aunt Jemima mixes and syrups, Quaker Chewy granola bars, Cap’n Crunch and Life cereals, and Rice-A-Roni side dishes.

Pepsi’s North America Beverages segment offers beverage concentrates, fountain syrups and finished goods under the Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, Diet Mountain Dew, Tropicana Pure Premium, Sierra Mist and Mug brands, as well as ready-to-drink tea and coffee, and juices.

Shareholders receive a 2.8% dividend. Merrill Lynch has a $125 price target, and the consensus target is $124.30. Shares traded Friday near $116.00.

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Verizon

This top telecommunications stock was the worst performing in the Dow Jones Industrial Average for much of this year. Verizon Communications Inc. (NYSE: VZ) is a global leader in delivering the digital world. Verizon Wireless operates America’s self-described most reliable wireless network, with 109.5 million retail connections nationwide. Verizon also provides converged communications, information and entertainment services over America’s most advanced fiber-optic network, and it delivers integrated business solutions to customers worldwide.

The company recently completed the $4.48 billion purchase of Yahoo in an attempt to increase content delivery and internet exposure. The assets acquired from Yahoo will be combined with AOL brands under a new subsidiary called Oath, which ultimately will house more than 50 media and technology brands. The new company will be headed by former AOL CEO Tim Armstrong, and many on Wall Street are positive on the deal.

Verizon investors receive a 4.82% dividend. Merrill Lynch has set its price target at $50, while the consensus target is $49.59. The stock traded Friday at $47.95 a share.

Walmart

The giant retailer’s stock has perfromed well since bouncing off lows for the year in January, and it is on the Merrill Lynch US 1 list. Wal-Mart Stores Inc. (NYSE: WMT) operates retail stores in various formats worldwide, including discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, cash and carry stores, home improvement stores, specialty electronics stores, restaurants, apparel stores, drug stores and convenience stores. It also operates via retail websites, such as Walmart.com and SamsClub.com.

Each week, nearly 260 million customers and members visit the company’s 11,535 stores under 72 banners in 28 countries and e-commerce websites in 11 countries. With fiscal year 2016 revenue of $482.1 billion, Walmart employs approximately 2.2 million associates worldwide.

Shareholders are paid a 2.61% dividend. The Merrill Lynch price target is $90. The consensus target is $82.37. The shares were changing hands early Friday at $78.40 apiece.

Despite the constant Wall Street bullishness, the market needs a breather, and a 5% sell-off would provide just that. These five top stocks rated Buy all pay good dividends and offer a degree of safety in what is clearly a very expensive market by historical standards. With fall right around the corner, playing it safe makes sense.