Even amidst macroeconomic headwinds, the S&P 500 index has remained resilient. For the year-to-date, the index has trended higher by 10%. While it’s good to remain optimistic, preparing for the worst is equally important. I don’t intend to be a fearmonger and it’s unlikely that there will be a big crash. However, even a 10% to 15% correction in the index is significant. To remain prepared for any such scenario, this column intends to discuss some low-risk, high-reward stocks to buy and hold.
It’s first important to understand the reason for remaining cautious. GDP growth decelerated in Q1 2024, and this calls for rate cuts. However, with stubborn inflation, the Fed will likely be slow in pursuing expansionary policies. Fear of a hard landing will likely be the catalyst for a market correction.
The first-rate cut is likely before the Presidential elections. Therefore, any weakness in the market would be an opportunity to accumulate quality stocks. For now, let’s discuss three low-risk, high-reward stocks to buy.
Panasonic Holdings (PCRFY)
In my view, Panasonic Holdings (OTCMKTS:PCRFY) stock is a low-risk bet for two reasons. First, PCRFY stock has already been oversold and has mainly remained sideways in the last 12 months. Considering a forward price-earnings ratio of 8.5, I don’t see a downside from current levels for this 1.26% dividend yield stock.
Further, Panasonic Holdings is among the major players in the EV battery market. The company is high on innovation and has ambitious expansion plans through 2031. Once industry sentiments change, PCRFY stock is likely to deliver multibagger returns.
In terms of expansion plans, Panasonic is targeting to boost its EV battery manufacturing capacity to 200GWh by 2031. This will translate into steady revenue growth coupled with EBITDA margin expansion.
On the innovation front, Panasonic has partnered with Sila Nanotechnologies to “purchase next-generation nano-composite silicon anode material for EV lithium-ion batteries.” By 2031, Panasonic aims to achieve a 25% increase in battery energy density. With all these positives, it’s a good time to buy PCRFY stock.
Apple (AAPL)
The last few quarters have been mixed for technology stocks. Nvidia (NASDAQ:NVDA) stock has surged 215% in the previous 12 months. Apple (NASDAQ:AAPL) stock has remained sideways during the same period. In my view, investors can consider some allocation to innovation driven ideas that have remained subdued. Apple is possibly among the best names to consider.
An important point to note is that the application of AI is being talked about across sectors. AI is expected to contribute $15 trillion to the global economy by 2030. I believe the markets are waiting for Apple’s big AI push. Once that’s clear, AAPL stock is likely to surge higher.
Apple ended Q2 2024 with $161 billion in cash and equivalents. This provides ample flexibility to invest in next-generation technology for its devices. Apple has already been making small acquisitions in the AI space. In another recent news, Apple is planning to sell its Vision Pro mixed-reality headset outside the United States. The wearable and services segment has ample scope for growth in the coming years.
Vale (VALE)
Among blue-chip commodity stocks, Vale (NYSE:VALE) is worth buying at current levels of $12.5. VALE stock trades at a forward price-earnings ratio of 5.2, indicatinghe extent of undervaluation. The stock also offers an attractive dividend yield of 8.8%.
Regarding potential returns, analysts have a median price target of $16 for the stock. This would imply an upside of 28% from current levels. Therefore, the total return from VALE stock is likely at 35% to 40% in the next 12 months, with valuations indicating limited downside risk.
Vale will benefit from relatively higher iron ore prices from a business perspective. A possible rate cut towards the end of the year can trigger a rally for industrial commodities. This will support revenue and adjust EBITDA upside.
It’s worth noting that for Q1 2024, Vale reported the highest quarterly iron ore production since 2019. Copper and nickel production also witnessed healthy growth. If this trend is sustained, the company will be positioned to deliver strong free cash flows.
On the date of publication, Faisal Humayun 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.
