As we head towards the year’s end, several market uncertainties exist. Stalling disinflation, rising bond yields, war escalation and dysfunction in Washington are all looming challenges. If any of these threats materialize, it could send the market into a downward spiral. Safe blue-chip stocks can mitigate some volatility from these unknowns.
So why are blue-chip stocks suitable in uncertain times? Typically, these stocks have a lower beta relative to the market. Beta is a measure of volatility that contrasts a stock’s volatility to that of the market. A beta greater than 1 means that a stock is more volatile, while below 1 means that the stock is less volatile.
I screened for some low-beta stocks that can provide safety in turbulent markets. Using Finviz, I screened for stocks with a beta below 0.5. This means they are half as volatile as the market. Then, I added a fundamental factor requiring 5% annual sales growth over the past five years.
The following stocks are great companies with significantly less volatility. Furthermore, their businesses are defensive with limited revenue cyclicality. As a result, they have lower downside risk when market volatility increases.
Hershey (HSY)
Hershey (NYSE:HSY) has been a dominant confectionery brand in the U.S. for decades. Its brands are pervasive among American households. Every day, consumers reach for treats like Hershey’s, Reese’s and KitKat to excite their taste buds.
It dominates the U.S. confectionery market with 31% market share, followed closely by Mars 29%. The company has grown share over the last decade and enjoyed tremendous success. Revenues have grown from $7.1 billion in fiscal year 2013 to $10.4 billion in FY2022.
Over the last three years, Hershey saw elevated consumption, leading to an 11.5% compounded annual revenue growth rate. However, Mizuho predicts growth may normalize due to reduced price elasticity. Also, the stock has retreated from all-time highs due to concerns about weight loss drugs.
Still, Hershey is in a solid position to drive further growth. First, it’s a trusted brand among consumers. Secondly, the firm has established long-standing retail relationships and can place its products in front of consumers. Furthermore, retailers prefer established brands to unproven ones, giving Hershey a head start over smaller competitors.
Hershey can grow sales by 3% annually over the next decade. Indeed, consensus estimates predict 8% growth this year and 3% in 2024. In a best-case scenario, the confectioner can exceed these numbers. For instance, in Q3 FY2023, revenues grew 11% year-over-year and organic sales increased 10.7%.
Hershey’s leading brands will continue attracting customers. Consumers find it hard to pass the candy aisle without picking out their favorite candy bar or snack. Hershey products are everyday indulgences that make it a stable grower with a beta of just 0.35.
Centene (CNC)
You do not often find safe blue-chip stocks that trade at dirt-cheap valuations. Centene (NYSE:CNC) is an opportunity at 10 times forward earnings. After the poor year-to-date showing, shares provide solid gains and limited downside from current levels.
Centene is a managed-care organization that provides government-sponsored healthcare plans. It is the largest Medicaid insurance company in the U.S. It serves over 24 million members nationwide, primarily in Medicaid, which accounts for two-thirds of its membership.
If you are worried about economic downturns and their impacts on your portfolio, CNC stock is the perfect investment. The company can benefit during downturns as individuals turn to its Medicaid and individual exchange products. Usually, Medicaid is the safety net for lower-income households. Enrollees increase during downturns, which could benefit Centene.
Another tailwind is demographic trends, particularly the aging population, which will spur increased healthcare spending. Furthermore, the increasing popularity of Medicare Advantage will support growth in the business.
Previously, management has focused on acquisitions to expand the business. It acquired WellCare in 2020 and Magellan Health in 2022. Now, the company is returning free cash flow to shareholders. Third quarter results highlighted it had returned $1.6 billion through repurchases YTD.
Due to its industry, Centene’s earnings are predictable, and its stock is less volatile with a beta of 0.49. Management expects 2023 earnings of at least 6.60. Thus, the stock trades at a cheap 10 times forward earnings. Furthermore, with a buyback in place, it could offer additional downside protection.
General Mills (GIS)
General Mills (NYSE:GIS) is another bellwether that offers safety in volatile times. It spots a beta of 0.25, meaning it’s significantly less volatile than the market. And with low earnings cyclicality, it provides the defensive characteristics you need.
The cereal and pet businesses General Mills engages in guarantee limited earnings volatility, making General Mills a safe haven. Its products have been a staple at the breakfast table for decades. Popular General Mills brands like Cheerios, Nature Valley, Old El Paso, Pillsbury, Betty Crocker, Yoplait and Haagen-Dazs dominate the U.S. market.
According to Euromonitor, Cheerios is the leading cereal brand, holding 12% of the market. Besides cereal, General Mills also dominates other categories, such as fruit snacks, quick recipe kits and dessert mixes.
Also noteworthy is that General Mill’s pet food business, Blue Buffalo, which makes up 12% of revenues, has significant secular tailwinds. First, there is the humanization of pets and their increased ownership. According to the U.S. Chamber of Commerce, over 114 million U.S. households own pets. Secondly, spending on pets has grown at 6.5% CAGR since 1990.
For fiscal year 2024, management expects 3 to 4% organic revenue growth and 4 to 6% EPS growth. General Mills has a foothold in cereals, snacks and pet food. Although the cereal business faces some challenges, the pet and snack business will do well. It’s one of the safe blue-chip stocks to buy to protect your portfolio.
On the date of publication, Charles Munyi did not hold (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.
