At first glance, the instinct to target safe stocks for a bear market seems a bit too cautious. After all, a CBS News report earlier this year mentioned that the pessimism is finally over. And at the time, surveyed investors saw better days ahead. Well, that narrative has changed.
In late September, investors were far more cynical about any upswings, noting that they could effectively be a dead-cat bounce. Further, many feared that a recession would be on tap for next year. So, should investors at least consider safe stocks for a bear market? It’s starting to look that way.
Perhaps most noticeably, shares of big-box retailer Walmart (NYSE:WMT) plunged following its earnings disclosure. Management issued a pensive note about consumer sentiment ahead of the holidays. Since companies like Walmart represent the real economy’s pulse, that’s not a great sign for growth speculators.
However, if you’re interested in staying in the market, it may be time to think safety first. Below are safe stocks for a bear market.
Given the troubles that Walmart just incurred, it’s understandable to be a little bit shaky about Costco (NASDAQ:COST). On a broader level, the two share a similar business model: sell at large scale and attract customers with the underlying discount. However, the two are very different when it comes to average shopper income.
I’m not going to get into the demographic granularity. If you’re interested, that research is freely available. However, what I will mention is that Costco members – because it’s a membership-only club – tends to attract a younger, more upwardly mobile and wealthier core consumer base than Walmart shoppers. On an anecdotal level, you can look at the parking lot of a Costco and do the same exercise for Walmart.
The difference is quite stark, if you catch my drift. If you don’t, the reality is that while both Costco and Walmart enjoy consistent profitability, the former prints a robust three-year revenue growth rate of 13.2%. For Walmart, this metric is a decent 7% but clearly lacks Costco’s firepower. So, COST is one of the safe stocks for a bear market.
Duke Energy (DUK)
To be honest, almost any relevant utility firm that’s not a complete mess up would fit into the category of safe stocks for a bear market. For this round, I’m going to go with Duke Energy (NYSE:DUK). Having never visited the eastern side of the U.S. – aside from transiting at JFK – I’m not personally familiar with Duke. That said, the main long-term benefit of the company is geographical leverage.
Headquartered in Charlotte, North Carolina, Duke provides electric power and natural gas services to its southern neighbor. In addition, the company’s website states that it provides various services to Florida, Indiana, Ohio and Kentucky. Due to cost-of-living concerns, millennials have been flocking to smaller Midwestern cities along with the Carolinas even before the pandemic. In the post-pandemic inflationary paradigm, this incentive has surely accelerated.
Cynically, that’s great news for Duke. And no matter what, people must pay their bills. So, it doesn’t really matter that Duke’s financials are less than sterling. It’s consistently profitable thanks to its captive audience. Because of that factor, it’s one of the safe stocks to own.
Archer Daniels Midland (ADM)
A multinational food processing and commodities trading firm, Archer Daniels Midland (NYSE:ADM) benefits from exceptional, even permanent relevance. I don’t care how advanced society becomes; we’ll always need to eat and that keeps the lights on at Archer Daniels Midland. However, Wall Street doesn’t think too much about ADM, with shares down almost 18% since the January opener.
Under this context, yes, it’s one of the riskier ideas among “safe stocks,” admittedly. It’s also possible that whatever funk that ADM is going through will dissipate soon enough. Fundamentally, I make that argument because, per Walmart’s warnings, consumers may be shifting away from discretionary purchases. That makes sense. But you can’t shift away from eating – that’s a no go.
Also, it’s quite possible that ADM – thanks to its market losses – has been de-risked. For example, it trades at only 10.3x trailing earnings and only 11x forward earnings. On a final note, Archer Daniels Midland also offers a forward yield of 2.44%. It’s been raising its dividend annually for the past 50 years, making it one of the safe stocks.
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.