Investing

5 Stocks to Hide In If the Big Correction Is Finally Here

Lee Jackson

Published: January 31, 2018 8:40 am

Last Updated: January 12, 2020 3:55 am

After the longest stretch in the history of the market without a 5% correction, a stretch that continues despite the recent selling, giddy investors are probably a little bit less celebratory. The good news is that fundamentally, despite higher valuations, the market is set up pretty well for 2018 as earnings and the tax reform package are serious tailwinds.

The knowledge that interest rate hikes are coming is no secret, and the bottom line is the market could use a 5% or even larger sell-off to allow the indexes to push higher later this year. With the option of going to all-cash an expensive one, and fully hedging a portfolio also costly, it may make sense to shift from higher beta stocks to safe plays that tend to do well when the going gets tough.

We screened the Merrill Lynch research universe database for stocks rated Buy, pay a dividend, and have the firm’s lowest volatility rating. We found five that would be great moves for nervous investors now.

American Electric Power

This industry leader is a solid dividend payer and remains a top utility pick in the Merrill Lynch US 1 list. American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.3 million customers in 11 states.

The company ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.

American Electric Power shareholders are paid a solid 3.63% dividend. The Merrill Lynch price objective for the shares is $75, and the Wall Street consensus target price is $74.07. The stock closed trading on Tuesday at $68.35 a share.

Exxon Mobil

This company remains a top Wall Street energy pick. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.

The company 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.

For 75 years in a row, Exxon has raised its dividend on a split-adjusted basis. Thanks to the company’s vertically integrated model in the oil and gas business, its profitability doesn’t suffer through commodity price swings like a company that’s a pure play in one segment of the value chain.

Shareholders are paid a nifty 3.55% dividend. Merrill Lynch has a $102 price objective for the stock, while the consensus price target is much lower at $88.95. The stock closed most recently at $86.78 per share.

Coca-Cola

This top Warren Buffet holding not only offers safety but an incredible strong worldwide brand with 40% overseas sales. Coca-Cola Co. (NYSE: KO) is the world’s largest beverage company, refreshing consumers with more than 500 sparkling and still brands.

Led by Coca-Cola, one of the world’s most valuable and recognizable brands, the company’s portfolio features 20 billion-dollar brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply, Georgia and Del Valle. Globally, it is the number one provider of sparkling beverages, ready-to-drink coffees and juices and juice drinks.

Through the world’s largest beverage distribution system, consumers in more than 200 countries enjoy Coca-Cola beverages at a rate of more than 1.9 billion servings a day. With coolers getting packed for picnics, parades and vacations you can bet that they will be stuffed with products from this iconic American company. Also remember that the company also owns 16.7% of Monster Beverage, which continues to deliver big numbers.

Coca-Cola investors are paid an outstanding 3.12% dividend. Merrill Lynch has set its price target at $52, while the posted consensus target is $49.87. The shares were last seen at $47.41 apiece.

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.

Colgate-Palmolive investors are paid a 2.14% dividend. The $83 Merrill Lynch price target compares with the posted consensus target of $76.64. The stock traded at $74.67 on Tuesday’s close.

Walmart

The giant retailer has performed well and is also on the Merrill Lynch US 1 list. Wal-Mart Stores Inc. (NYSE: WMT) is the world’s largest retailer, operating retail stores under the formats of Walmart Stores, Supercenters, Neighborhood Markets, as well as Sam’s Club locations, in the United States, and it has a growing e-commerce business (including Jet.com). Internationally, Walmart also operates locations in several countries, including Argentina, Brazil, Canada, China, Japan, Mexico and the United Kingdom.

Each week, nearly 260 million customers and members visit the company’s 11,535 stores under 72 banners in 28 countries and e-commerce sites in 11 countries. With fiscal year 2017 revenue of nearly $486 billion, Walmart employs approximately 2.2 million associates worldwide.

Walmart shareholders are paid a 1.9% dividend. The Merrill Lynch price target is $120. The posted consensus target is $105.93, and the shares closed most recently at $107.73 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 earnings reporting mostly over, playing it safe now really makes sense.