While President Joe Biden might not approve of this message, it may be time for investors to consider safe stocks to buy. Safety? In this environment? C’mon, man! I’m not here to rain on the Biden administration’s parade. However, as hot as the third quarter has been for the U.S. economy, it just might not last.
For one thing, it’s unlikely that such a hot print can sustain itself. Yes, generally speaking, Americans have been opening their wallets for to buy cars, to go out to fancy restaurants and attend Taylor Swift concerts, as NPR mentioned. Unfortunately, with soaring borrowing costs and still stubbornly high inflation, consumers can’t afford to be profligate.
Also, while the labor market may be hot, that circumstance might not last either. For example, if the rough economy wasn’t imposing headwinds, I doubt that InvestorPlace would continue to bring up new companies that are issuing pink slips to their workers.
In other words, don’t get too comfortable. Below are safe stocks to buy to hedge an uncertain future. And if have other ideas you want to share, feel free to sound off on my X account.
Occidental Petroleum (OXY)
Based in Houston, Texas, Occidental Petroleum (NYSE:OXY) engages in hydrocarbon exploration or the upstream component of the energy value chain. According to its public profile, Occidental has projects in the U.S. and the Middle East. As well, it conducts petrochemical manufacturing in the U.S., Canada, and Chile. Since the start of the year, OXY gained about 2%.
In fairness, OXY incurred significantly choppy trading, making it an oddball choice for safe stocks to buy. Indeed, certain factors such as balance sheet stability could use some work. On the other hand, the company benefits from solid profit margins. For example, its operating margin comes in at 29.55%, ranked better than 75% of entities in the oil and gas industry.
Also, the outside fundamentals are attractive. Cynically, the average age of passenger vehicles on U.S. roadways hit a record 12.5 years this year. That means people are still driving their combustion-powered cars, boding well for hydrocarbon explorers. Analysts rate OXY a moderate buy with a $70.71 price target, implying about 14% upside.
Keurig Dr Pepper (KDP)
Billed as a leading producer and distributor of hot and cold beverages, Keurig Dr Pepper (NASDAQ:KDP) has two popular consumer brands. Both these brands should perform well as the economy pivots further away from the vestiges of the Covid-19 pandemic. For example, the government is obviously no longer in the business of issuing stimulus checks for everyone. That means consumers need to be more careful with their spending.
Moving forward, I anticipate a pivot away from (arguably unnecessary) trips to overpriced coffee shops and more toward “do-it-yourself” beverages. Fundamentally, that should benefit KDP, making it a top choice for safe stocks to buy. Also, to provide a boost for confidence, the company posted better-than-expected financial figures for its third quarter. In particular, KDP beat analysts’ consensus targets for revenue and earnings per share.
On the passive income side, Keurig Dr Pepper offers a forward yield of 2.88%. Just as well, the payout ratio sits at 44.87%, which is reasonable. Analysts peg KDP as a moderate buy with a $35.42 target, implying almost 19% growth.
Sherwin-Williams (SHW)
Headquartered in Cleveland, Ohio, Sherwin-Williams (NYSE:SHW) primarily engages in the manufacture, distribution and sales of paints, coatings, floorcoverings and related products. It serves the full range of customers: professional, industrial, commercial and retail. As well, the company features a strong presence in North and South America and Europe. Unfortunately, it’s a bit of a contrarian idea, with shares down more than 1% since the January opener.
And that’s not the worst of it. In the trailing month, shares slipped more than 7%, displaying uncharacteristic volatility. Nevertheless, I believe it’s one of the safe stocks due to its fundamental relevance. With so many people acquiring homes back during the early pandemic years, demand for upkeep would likely be strong for the foreseeable future.
Notably, it’s not just empty rhetoric. Since 2009, revenue has steadily marched higher on an annual basis. Further, if current quarterly trends hold, the winning streak will continue in 2023. Analysts rate SHW a moderate buy with a $282.50 target, implying almost 20% upside.
American Water Works (AWK)
In terms of raw financial print, American Water Works (NYSE:AWK) might not hack it as one of the safe stocks. Most conspicuously, since the beginning of the year, AWK fell more than 24%. In the trailing one-year period, it’s down just under 20%. That’s not exactly confidence-inspiring stuff.
As for the financial side, American Water could use some improvements in balance sheet stability. Further, from a traditional valuation standpoint, AWK doesn’t scream a bargain. For example, shares trade at a forward earnings multiple of 22.65x, worse than nearly 90% of its regulated utilities peers. So, why bother with the company at all?
Mainly, as a water and wastewater services specialist, AWK commands a permanently relevant business. Similar to other utility players, the company has a natural monopoly. Try as you might, you’re not going to set up shop as a rival water utility. Plus, American Water demonstrates its resilience through consistent profitability. Analysts peg shares as a moderate buy with a $141 target, implying over 21% growth.
Valvoline (VVV)
Another oddball idea for safe stocks to buy, Valvoline (NYSE:VVV) might be the most boring enterprise on this list. Unfortunately, that description didn’t exempt VVV from volatility. Since the start of the year, shares lost nearly 9% of equity value. Just in the trailing one-month period, the security went 7% in the red, demonstrating near-term negative acceleration.
However, over the long run, I still believe in Valvoline as an unsexy but relevant entity. Fundamentally, consumer sentiment remains muted relative to pre-pandemic norms. Further, the average age of vehicles – as stated before – hit a record high. People can’t afford to make the transition to electric vehicles, as confirmed by EV inventory piling up.
What’s the solution? Simple – keep current (combustion) cars running for as long as possible. That requires basic maintenance, something that Valvoline specializes in with its oil change centers.
Turning to Wall Street, analysts rate VVV a moderate buy with a $39.43 target, implying nearly 32% upside.
Corteva (CTVA)
Moving into the more adventurous – read risky – side of safe stocks to buy, Corteva (NYSE:CTVA) nevertheless offers an enticing narrative. Per its public profile, Corteva represents an agricultural chemical and seed company. As a result, the enterprise plays a significant role in protecting and preserving the broader food supply chain.
From a big picture perspective, Corteva benefits from a critical reality. No matter how advanced we become as a civilization, we’ll still need access to nutrition. As carbon-based lifeforms, we need sustenance to survive, making the red ink in CTVA a possible discounted opportunity. Since the January opener, shares gave up nearly 19% of equity value.
Unfortunately, multiple headwinds contributed to a revenue growth deceleration. On a trailing-12-month (TTM) basis, Corteva inked sales of $17.5 billion, marginally better than the $17.45 billion posted in 2022. Still, the red ink also means that CTVA trades at 1.29x book value, below the sector median of 1.62x.
Looking to the Street, analysts peg CTVA as a strong buy with a $66.50 target, implying 39% growth.
Lamb Weston (LW)
An American food processing company, Lamb Weston (NYSE:LW) might be a risky entry for safe stocks to buy. Still, the fundamentals point to an eventual recovery. Since the January opener, LW gained just under 2%. That’s disappointingly modest but that’s not the worst of it. Rather, in the trailing six months, LW gave up nearly 21% of its market value.
At this point, Lamb Weston – which is one of the world’s largest producers and processors of frozen French fries and other frozen potato products – is trying not to drown. Again, that’s not a great look for safe stocks. Having said that, it’s understandable. With consumers still spending in a “funflation” economy, that leaves little room for frozen food specialists.
However, as the euphoria of funflation fades and financial reality checks materialize, Lamb Weston should rise. Also, the red ink has a (hopefully) positive side effect: shares now trade at only 12.84x trailing earnings, below the sector median of 19x.
Finally, analysts rate LW a unanimous strong buy with a $126.50 target, implying over 42% upside.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
