Back in August, I made the argument why now’s the right time to buy safe stocks. Just over a month later, this continues to be the case. The volatility and uncertainty that has rocked the stock market so far in 2022 doesn’t show many signs of letting up anytime soon.
The Federal Reserve continues to raise interest rates. This is likely to continue, as interest rates remain at multi-decade highs. Climbing interest rates are likely to continue putting pressure on the speculative stocks that thrived during the 2020/2021 bull market.
Along with hurting the market, according to the World Bank, this raising of interest rates by the Fed and other central banks is raising the chances of a global recession. This could affect the operating results of many companies (both established and early-stage), also challenging a recovery for stocks.
Nevertheless, the discouraging prospect of more pain ahead doesn’t mean you need to sit in cash. Your better option is to stay invested, but go on the defensive. You can achieve this, by focusing on names like these seven safe stocks. Each one is likely to see their resiliency continue in this down market.
|BSM||Black Stone Minerals||$15.67|
|NSSC||Napco Security Technologies||$30.10|
Amphastar Pharmaceuticals (AMPH)
Amphastar Pharmaceuticals (NASDAQ:AMPH) is one of the best safe stocks out there right now for many reasons. First, as you can tell from its name, it’s in the healthcare sector.
Recession-resistant companies offering healthcare products/services are much better positioned when it comes to riding out a downturn. However, the appeal of AMPH stock goes beyond this. Its portfolio of branded and generic treatments provides it with steady cash flow. The company also has a strong balance sheet,
Its $183.4 million cash position far exceeds the amount of long-term debt and other non-current liabilities on its balance sheet (around $104 million). Best of all, Amphastar trades at a reasonable valuation (17.1x earnings).
Up by more than 26% year-to-date, while the stock market overall is down by double-digits during this timeframe, it is likely to continue to perform well during this time of negative overall market sentiment.
AMPH stock earns an A rating in my Portfolio Grader.
Black Stone Minerals LP (BSM)
With the big surge in energy prices, it’s no surprise Black Stone Minerals (NYSE:BSM) has paid off for investors so far in 2022, and not only in terms of price appreciation.
Besides surging 49% since January, investors in BSM stock have also received a total of $1.09 in dividends. This gives it a total return for the year well above 50%.
With oil prices dipping on recession fears, you may at first think you’ve missed the boat with this strong performer. Fortunately, though, that’s not the case. Even as oil has pulled back from the highs it hit earlier this year due to Russia’s Ukraine invasion.
At least, not when the U.S. Energy Information Administration expects crude oil and natural gas prices to stay above 2020 and 2021 price levels through 2023. This points to more gains, and more large dividend payments, for Black Stone Minerals shares.
BSM stock earns an A rating in my Portfolio Grader.
Commercial Metals (CMC)
Commercial Metals (NYSE:CMC) is a major provider of recycled steel. Like Black Stone Minerals benefiting from Russia-related tailwinds for oil, this company has benefited from Russia-related tailwinds in the steel space.
The geopolitical crisis led to a big boost for CMC stock. Steel supply shocks paved the way for strong results during its fiscal third quarter (ending May, Q4 numbers are slated for Oct. 13).
Sure, with China’s economic slowdown, and the spiking concerns of a global downturn for the steel industry, the market doesn’t expect its strong operating performance to continue.
However, it’s possible this sentiment has become overly priced into its shares. You can buy the stock today at a super-low valuation (just 4.6x earnings). As it can ride out a downcycle much better than legacy steel producers, a drop in its earnings after its latest windfall may not be as dramatic as currently expected.
CMC stock earns an A rating in my Portfolio Grader.
Campbell Soup (CPB)
After taking a look at a few under-the-radar safe stocks, let’s dive into one that’s more commonly regarded as a safe harbor during challenging times. Campbell Soup (NYSE:CPB) is a stock that needs little introduction. As a producer of packaged food products (a consumer staple), it’s in a recession-resistant business.
CPB stock pays out a steady dividend to go along with its steady operations. While dividend growth has been minimal over the past five years (averaging 1.12% annually), its current payout gives it a solid forward yield of 3.1%.
As it trades at a reasonable valuation (16.4x earnings), a further rise in interest rates isn’t going to affect it the same way it’s likely to affect stocks trading at more premium valuations. All of this points to shares, up by around 9% so far this year, continuing to deliver positive returns during this market rough patch.
CPB stock earns a B rating in my Portfolio Grader.
Dollar General (DG)
Inflation and recession worries may be bad news for most stocks, but they’ve been a positive for Dollar General (NYSE:DG). Its shares have held up in this down market, thanks to macro headwinds helping to boost traffic at its discount retail stores.
Last quarter, the company reported a 9% jump in net sales, a double-digit jump (10.8%) in earnings per share. As economic conditions get worse, such strong results could continue in the quarters ahead. Especially as the company sees a robust increase in traffic from more affluent customers.
According to CEO Todd Vasos, the company has seen the largest increase in shoppers from households earning $100,000 or more per year. Trading for 21.1x earnings, DG stock may look pricier than many of the other safe stocks. However, high earnings growth helps to justify this higher multiple.
DG stock earns a B rating in my Portfolio Grader.
Global Partners (GLP)
Price appreciation and dividends have resulted in strong returns for investors in Global Partners (NYSE:GLP) master limited partnership units.
The energy boom has been a boon for the bottom line of this gasoline wholesaler and retailer. Again, while gas prices have moved lower lately, they’re likely to remain at elevated levels compared to levels seen in 2020 and 2021.
In turn, this will enable GLP stock to continue to generate strong returns simply from maintaining its current 61 cent per share quarterly dividend. That’s even if it barely moves higher.
At today’s prices, this payout gives the stock a forward yield of around 8.6%.
Trading for just 4x earnings, and sporting a high yield, the current pessimism about energy stocks works to your advantage with Global Partners LP. Through its high yield alone, it can provide above-average returns during this bear market.
GLP stock earns an A rating in my Portfolio Grader.
Napco Security Technologies (NSSC)
Napco Security Technologies (NASDAQ:NSSC) stock has nearly doubled in price since May.
Last quarter, revenue increased 22% compared to the prior year’s quarter. Recurring revenue rose by an even larger amount (33%). Net income grew 36% year-over-year (or YoY). This points to its finding success with its pivot toward a SaaS-based revenue model.
High growth is likely to continue, as recent trends increase demand for its products. In particular, demand among end users such as schools and universities.
With a forward earnings multiple of 43x, it’s far pricier than the other safe stocks listed above. However, with the expectation it continues to grow earnings at an outsized pace, it could sustain this rich valuation.
NSSC stock earns an A rating in my Portfolio Grader.
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