There’s a lot of talk these days about market highs and economic growth numbers being revised to the upside. The underlying message is growth is here and it’s getting stronger.
So why write about safe stocks?
Because when growth is “obvious” to investors, that’s when you need to start thinking about safety. Markets consolidate and they also get ahead of themselves. And of course, there’s sector rotation.
Last year’s rally was built off the acceleration of digital adoption in all facets of our lives. But the growth that is coming is of a different sort altogether. And with that shift, big investors start to rotate their portfolios toward the new types of investments that will take center stage this year.
The seven safe stocks for uncertain times here are a way to keep your portfolio performing in good times and bad, consolidations, rotations and corrections:
- Applied Materials (NASDAQ:AMAT)
- Caterpillar (NYSE:CAT)
- Danaher (NYSE:DHR)
- Target (NYSE:TGT)
- Taiwan Semiconductor (NYSE:TSM)
- Lowe’s (NYSE:LOW)
- Deere & Co (NYSE:DE)
Applied Materials (AMAT)
One of the biggest challenges today is the lack of semiconductors available to make new products. It’s ironic that the tech-driven stock boom last year has run into a wall because of a distinct lack of supply as the pandemic shut down production facilities.
But production is back and one way to play the rebound isn’t with chip makers, it’s with the company that has been making the equipment for chip makers since 1967. That’s AMAT.
This sector can be volatile when you’re betting on the chip makers since supply and demand run in cycles, or have historically. But today, chips are getting built into everything, from cars to toasters. And that’s long-term bullish for AMAT. It also puts it in the safe stocks category moving forward.
The stock is up 180% in the past 12 months and 61% year to date, yet it’s only trading a price-to-earnings ratio of 33x, which is still well below many tech offerings.
Caterpillar (CAT)
If the U.S. is going to spend billions if not trillions on infrastructure projects this year and beyond, then CAT will certainly be at the front of the line. There are few companies more directly tied to economic growth and development than this construction and mining equipment builder.
When traditional economic growth starts, it starts in the dirt. By that, I mean in mines and raw land, digging for industrial commodities and clearing land for buildings and houses. These are the new safe stocks because this is what we’re about to see in the coming months.
That means you want to buy the global leader in earth-moving equipment and mining vehicles. In 1929, CAT will celebrate its 100th anniversary on the NYSE and it has been in the Dow Jones since 1991. It can navigate economic cycles.
CAT is up 84% in the past 12 months, coming off its March 2020 lows. It’s pricey here, but earnings should start to rise and catch up to the price in coming quarters.
Danaher (DHR)
It’s likely that this name doesn’t ring a bell on its own. That’s because DHR is a holding company that has built a collection of well-respected healthcare brands around the world.
Fundamentally, DHR focuses on life sciences and diagnostic equipment and materials, as well as an environmental and applied solutions division. The latter has certainly attracted interest from institutions looking to boost their ESG stock exposure.
But the real growth business here is the life sciences and diagnostic equipment. The company recently purchased a genetic testing company that will help DHR provide accurate testing for things like the new coronavirus, within minutes. Today, tests are either quick and inaccurate or slow and accurate. It also has established exposure to China.
The stock has been on a run due to its positions in various hot sectors, but it’s on a long-term growth trajectory and is under smart management. DHR stock is up 55% in the past 12 months, but under just 2% year to date.
Target (TGT)
There is little doubt that TGT would have seen a 96% rise in its stock in the past 12 months had it not been for its online sales and innovative same-day in-store pick-up.
Eight years ago, TGT’s e-commerce strategy looked doomed, as did the company, when it fell victim to the largest hack in retail history. But this company has managed to survive a lot since its founding in 1902. And its reputation as one of the elders in the pantheon of safe stocks didn’t come easily.
TGT completely shifted gears and took a huge chance in reimagining its business model, then implementing it on a very aggressive schedule.
And it has paid off.
Today, the company is still trading at an attractive P/E of 23x and continues to grow its sales. And that will continue as the economy starts moving again.
Taiwan Semiconductor (TSM)
This chip maker is the largest semiconductor foundry and one of the most valuable semiconductor companies in the world.
Nowadays, “fabless” chip companies are the way to go. Most major brands design the chips but they contract the work to companies like TSM. Since they don’t make, or fabricate, their own chips, they have retained the name fabless.
This new strategy means chip companies can focus on new chip design, and TSM can focus on building the chips. In the past, chip demand was fairly cyclical. But as smart devices proliferate and mobile networks mature, chip demand has become constant.
That’s what adds TSM to the smart stocks list. It slowed during the pandemic, but now it’s in overdrive. And it will remain busy for quite a while to come.
TSM stock is up 153% in the past 12 months, but it’s still a decent buy and as earnings rise it will be an even better buy.
Lowe’s (LOW)
When you’re stuck at home, you start to see where some home upgrades or long-neglected projects start to gain your attention. And with low interest rates, bigger projects also become more attractive.
And that all benefits this big box home improvement chain. That’s why LOW stock is up 103% in the past 12 months. Yet even after that big move, LOW is still trading at a below-market P/E of 25x. That’s what makes this one belong in the safe stocks category.
LOW has been around since 1946 and has nearly 2,200 stores in the U.S. and Canada. With interest rates likely to stay low for quite some time and more people involved with DIY projects, especially now that the pandemic has changed behaviors and spring temperatures rise, LOW should be looking a booming business in coming quarters.
Also, we’re entering the big home buying season and supply has been tight, but that may also change. That will help boost business as well.
Deere & Co (DE)
While it’s pretty easy to spot CAT equipment when driving around the U.S., perhaps the only other brand that’s more visible is the green and yellow mowers, harvesters, tractors, tillers and everything else that falls under the John Deere brand, including forestry and infrastructure machinery.
DE has been around since Andrew Jackson turned over his presidency to Martin van Buren in 1837. That’s a company that has ridden the highs and low of the U.S. for almost as long as the U.S. has been around. And that’s exactly why it’s one of the top safe stocks out there.
Also, it’s both a commercial and consumer brand that has deep roots in the agricultural sector. And not just in the U.S., but it also is a player in 30 countries around the world including India, China, Russia and Brazil. DE is also an important ESG stock.
DE stock is up 156% in the past 12 months, and 39.5% year to date, yet it trades a P/E of 34x.
— Louis Navellier and the InvestorPlace Research Staff
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Source: Investor Place