Invest in the best and forget the rest is a timeless strategy
- One way to think about safe stocks is to look for companies that are among the best in their sector.
- JPMorgan Chase (JPM): The world’s biggest bank will hold up well regardless of interest rate movements.
- Johnson & Johnson (JNJ): The company will continue to grow revenue and earnings after spinning off its consumer products division.
- Coca-Cola (KO): Investors can’t go wrong from investing in a company that has a fortress of cash to deploy.
- Home Depot (HD): Don’t count out demand for home improvement even as home building slows.
- Kraft Heinz (KHC): Once the company works through supply chain difficulties, KHC stock will rise again.
- Chart Industries (GTLS): Exposure to LNG and hydrogen demand gives Chart Industries a long runway for growth.
- Caterpillar (CAT): Despite concerns about a slowing need for heavy equipment, Caterpillar says demand remains strong.
This is the second time I get to write about safe stocks to buy and hold. I liked the list I put together in October (and have positions in a couple), but I’m happy to have a second bite at the apple and give this list a revision. That’s because there are more than seven safe stocks, and more than one way to think about them.
One tried-and-true method is to look for best-in-class stocks. Long-term investments should consider buying the best and forgetting the rest. Sure there’s a place for a speculative stock or two in every portfolio. But over the long haul, most buy-and-hold investors are looking to lower their risk. A great way to do that is to buy stocks of companies that have consistent revenue and earnings.
And the way to find those stocks is by looking at companies that are among the leaders in their sector. That’s my focus for this article. So here are seven safe stocks to buy and hold for a solid long-term total return.
Data last updated: November 3, 2022 2:10 PM EDT
|JPM||JPMorgan Chase & Co||$127.61|
|JNJ||Johnson & Johnson||$171.29|
|KHC||Kraft Heinz Company||$38.22|
|GTLS||Chart Industries IN||$226.48|
Safe Stocks to Buy and Hold: JPMorgan Chase (JPM)
Will they or won’t they? I’m talking about the Federal Reserve and its stance on interest rates. There are some that are suggesting that a slow-down, pause or even reversal may be in the offing. If you own JPMorgan Chase (NYSE:JPM), you really won’t have to care.
To begin with, JPMorgan Chase is the largest bank in the world. And that was on full display in the company’s third-quarter earnings report. The bank says that, for now, consumers and businesses are holding up well. And even if that situation changes, JPMorgan is well capitalized to hold up.
In the last month, JPM stock is up 20%, but the stock still has a P/E ratio of around 10.8x earnings. The bank is projected to post single-digit earnings growth over the next five years. And that’s backed up by a dividend with a yield of over 3% which should be more than enough to keep investors ahead of inflation which is likely to remain elevated for some time.
Johnson & Johnson (JNJ)
Most investors know that Johnson & Johnson (NYSE:JNJ) is one of the best-in-class stocks in the consumer staples sector. What they may not know is that some of the company’s most iconic brand names are about to become part of a separate company. J&J is preparing to spin off its consumer health division. The new company, which will be named Kenvue, will house products such as Tylenol, Band-Aid, and Johnson’s Baby Powder.
And when it does, it will be taking approximately 16% of the company’s total revenue. And that’s why JNJ stock didn’t get much of a lift from its earnings report. Investors are a little concerned about what the company’s earnings may look like.
But for long-term investors, J&J still appears to be a safe, low-beta stock that will continue to generate stable revenue and earnings. The company’s remaining medtech and pharmaceutical products divisions are only expected to show low single-digit earnings growth over the next five years, but the company has a solid dividend with a yield of over 2% to help boost investors’ total returns.
Safe Stocks to Buy and Hold: Coca-Cola (KO)
Coca-Cola (NYSE:KO) falls in the consumer discretionary niche. But like McDonald’s (NYSE:MCD), the company is frequently looked at as a staple stock. Its products are in demand in any season through any macroeconomic condition.
And with the company’s size comes another advantage — pricing power. They can more readily pass along the cost to their consumers. That’s meaningful as the company is navigating higher costs due to inflation.
The company is cash rich with over $10 billion and is not hesitant to use that cash to the benefit of its shareholders. Coca-Cola is a dividend king having increased its dividend for each of the last 60 consecutive years. And while many investors prefer PepsiCo (NASDAQ:PEP) because of its snack food division, Coke has taken strides to diversify its beverage offerings so it’s not as dependent on its flagship carbonated beverages which have fallen out of favor in recent years.
Home Depot (HD)
The housing sector is notoriously cyclical in nature. One way to maintain exposure to the sector in good times and bad is by investing in best-in-class home improvement stocks. And one of the giants in the sector is Home Depot (NYSE:HD).
The company was one of the first retailers in any sector to embrace the omnichannel model that has now become table stakes. Its embrace of digital technology was on full display during the pandemic and will keep it moving forward.
Some investors may be unsure about investing in home improvement stocks when the housing market is slowing down. But if homeowners can’t afford to move to a different home, they are likely to try and improve the one they have. That bodes well for a company that trades at a P/E of around 18.2X and has a healthy dividend yield of 2.57%.
Safe Stocks to Buy and Hold: Kraft Heinz (KHC)
Going back to the consumer staples one more time brings me to Kraft Heinz (NYSE:KHC). I won’t deny that the last year hasn’t been rewarding for investors. But I’m talking about safe stocks to buy and hold for the long haul. This is where Kraft Heinz shines.
The company checks the boxes for things investors should look for in safe consumer staples stocks. Recognizable brands. Pricing power. A sound dividend. These are all important because many of the troubles the company faces come from supply chain concerns.
I can’t say when these issues are going to be resolved and whether they may get worse before they get better. But with my tongue firmly in my cheek, I will say that the issues are transitory and in the long term, KHC stock will be just fine.
Chart Industries (GTLS)
If Chart Industries (NYSE:GTLS) is a new name for you, that makes two of us. But that’s what I love about the market. There are always some intriguing companies to discover. Chart Industries supplies equipment that’s needed to produce, store, and use industrial gases.
In 2022, that includes liquefied natural gas () as well as hydrogen. And this is a story that’s in the early innings which means buying GTLS stock today is a safe bet in the energy sector. In the first quarter of the year, the company reported record orders as well as a record backlog based largely on demand for LNG.
Unlike the other companies on this list, Chart Industries does not offer a dividend. However, I still consider it one of the safe stocks to buy and hold because it continues to grow revenue and earnings on both a sequential and year-over-year basis. This is a best-in-class company to keep on your watchlist and perhaps one that you should even consider taking a long position in.
Safe Stocks to Buy and Hold: Caterpillar (CAT)
Last on this list of safe stocks to buy and hold is Caterpillar (NYSE:CAT). The company just reported stellar earnings in late October. However, it’s what the company said about demand that has investors either confused or energized depending on where you stand.
Caterpillar stood to benefit from the infrastructure spending bill that passed Congress this past summer. That appears to be playing out at this time. Company executives said repeatedly on the call that it felt demand was strong. The company acknowledged that demand in the residential construction area was softening. However, it said that while they are monitoring the macroeconomic conditions, it still believes that demand remains strong.
Currently, CAT stock is bumping against its consensus price target. However, Caterpillar has received several price target increases since the earnings report. Furthermore, the company has an attractive P/E ratio of around 15X earnings and a dividend yield of over 2% that will reward investors for holding on even if a recession is on deck for 2023.
This post originally appeared at InvestorPlace.
On the date of publication, Chris Markoch 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.