In this article, we will take a look at the 15 safe stocks to buy. To see more such companies, go directly to Starter Stock Portfolio: 5 Safe Stocks To Buy.
Amid the current market turmoil which seems to have no end in sight, it feels weird to label anything as “safe,” especially stocks, which are spooking investors more and more, forcing them to pull money from the stock market and invest in other investment vehicles. A Wall Street Journal report earlier this month quoted a survey from Bank of America, which said that fund managers’ allocation of stocks is now at about 2.2 standard deviations below its long-term average. The report said that instead of stocks, fund managers are gaining more exposure to bonds, emerging markets, cash and commodities.
However, for those who are still interested in investing in the stock market, there’s almost a consensus among analysts that short-term market cycles should not blur your long-term outlook.
"Don't Fear the Bear"
According to an Edward Jones report titled “Don’t Fear The Bear,” from 1900 through 2020, the Dow Jones Industrial Average (Dow) has had an average annual return of 9.9%, including dividends. The report said that investors should invest in quality stocks and should not worry about the short-term bear markets.
“Instead of worrying about the timing of the next bear market, prepare your portfolio today with an appropriate mix of quality investments so you can stay invested in both bear and bull markets over time”
When it comes to investment options for beginners, ETFs have gained a lot of popularity over the past few years, thanks to the wider exposure they provide to a basket of stocks with limited risks. One of the biggest benefits of investing in ETFs is that they give you exposure to a wide range of stocks in budget. Investing in ETFs also saves you a lot of money in transaction fees that comes with trading individual stocks. When you are investing ETFs, your transactions fees is limited when compared to stocks and mutual funds.
The Vanguard S&P 500 ETF is one of the most recommended ETFs for beginner investors since the ETF is composed of low-risk, high-quality stocks that are considered the safest. For this article, we scanned the top holdings of the ETF and picked 15 stocks that are considered the safest for beginner investors. We started from the top of the ETF’s holdings and picked stocks that are dominating their industries and have strong dividend histories. Given the current banking crisis and the volatility in the financial sector, we skipped banks and financial services stocks.
The list is ranked in ascending order of the number of hedge fund investors for each stock, which we took from Insider Monkey’s database of 943 hedge funds and their holdings tracked as of the end of the fourth quarter of 2022.
Photo by Adam Nowakowski on Unsplash
Starter Stock Portfolio: 15 Safe Stocks To Buy
15. Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Holders: 57
With over 35 years of consistent dividend increases and a dividend yield of over 3.5%, Chevron Corporation (NYSE:CVX) is one of the best and safest stocks to buy for beginners. Recently, Mizuho analyst Nitin Kumar increased the price target of Chevron Corporation (NYSE:CVX) stock to $206 from $200 and kept a Buy rating.
As of the end of the fourth quarter of 2022, 57 hedge funds out of the 943 funds tracked by Insider Monkey reported owning stakes in Chevron Corporation (NYSE:CVX). The total value of these stakes was $32 billion. A whopping $29 billion of these $32 billion stakes was owned by Warren Buffett’s Berkshire Hathaway.
Carillon Eagle Growth & Income Fund made the following comment about Chevron Corporation (NYSE:CVX) in its Q4 2022 investor letter:
“Energy performed well during the fourth quarter, with the sector up about 23%. Investors returned to the sector after the Organization of the Petroleum Exporting Countries (OPEC) signaled it would reduce production.Chevron Corporation(NYSE:CVX) reported strong quarterly results while buying back stock, paying a healthy dividend, and maintaining a strong balance sheet.”
14. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 58
The Coca-Cola Company (NYSE:KO) is one of the best defensive stock picks for a recessionary environment according to several analysts. Last month, Citi started covering The Coca-Cola Company (NYSE:KO) with a Buy rating and a $68 price target. During the same month, Morgan Stanley kept an Overweight rating on The Coca-Cola Company (NYSE:KO) but raised its price target to $70.
As of the end of the fourth quarter of 2022, 58 hedge funds had stakes in The Coca-Cola Company (NYSE:KO) according to Insider Monkey’s database of 943 hedge funds. The biggest stakeholder of The Coca-Cola Company (NYSE:KO) was Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK-B) which had a $25 billion stake.
Rowan Street Capital made the following comment about The Coca-Cola Company (NYSE:KO) in its Q4 2022 investor letter:
“Let’s takeThe Coca-Cola Company (NYSE:KO)for example. Its dividend yield is 2.8%, earnings are estimated to grow at only 3.6% rate per year over next 4 years, and its earnings multiple is currently at 24x (based on next years forecasted earnings). KO has an anemic growth, so we can argue that paying 24x earnings is not very attractive. Let’s assume that the multiple will stay constant over the next 3-5 years, thus our expected annual returns will be 2.8%+3.6% = 6.4% (that is below the current reported inflation rate and only slightly above the risk-free rate of 4%).”
13. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 62
With years of consistent dividend increases and a solid underlying business, The Home Depot, Inc. (NYSE:HD) is one of the best picks for any starter stock portfolio.
Recently, UBS ran a machine-learning model to select its top dividend picks. Unsurprisingly, The Home Depot, Inc. (NYSE:HD) made it to the list of these dividend stocks.
The Home Depot, Inc. (NYSE:HD) recently posted weak Q4 results. But several Wall Street analysts kept their optimistic view of The Home Depot, Inc. (NYSE:HD). For example, BofA’s Elizabeth Suzuki said that The Home Depot, Inc. (NYSE:HD)’s 2023 guidance may be overly conservative.
The analyst expects home investment to remain above pre-COVID levels as she believes the “tailwinds for the home improvement industry are generally favorable.”
Matrix Asset Advisors made the following comment about The Home Depot, Inc. (NYSE:HD) in its Q3 2022 investor letter:
“During the quarter, we re-established a position inThe Home Depot, Inc.(NYSE:HD) sold earlier this year, after the shares declined sharply on big picture concerns about a softer housing market and lower consumer spending. We believe that HD is a very well-managed company, positioned to continue showing good profits even as the economy decelerates. The products it carries in inventory are in year-round demand from contractors and homeowners wanting to maintain and improve their homes. The company has historically been shareholder friendly, repurchasing shares and increasing the dividend, most recently by 15% earlier this year. On September 30, HD’s current dividend yield was 2.8%.”
12. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 66
Costco Wholesale Corporation (NASDAQ:COST) is one of the stocks that remain stable even during recessions and high inflation. Recently, Bank of America said that food inflation could provide an upside potential to several grocery stocks and warehouse clubs like Costco Wholesale Corporation (NASDAQ:COST).
At the end of the fourth quarter of 2022, 66 hedge funds had stakes in Costco Wholesale Corporation (NASDAQ:COST). The total value of these stakes was $3.4 billion.
Madison Funds made the following comment about Costco Wholesale Corporation (NASDAQ:COST) in its fourth-quarter 2022 investor letter:
“Costco Wholesale Corporation(NASDAQ:COST) stock fell after November sales results showed a slowing consumer. The slower November sales were followed by a slight first quarter miss with lower-than-expected margins. Costco commented that they are not seeing trade-down but private label penetration has increased modestly. Traffic continues to be positive, and Costco remains well-positioned in a more challenging macro environment due to its strong value proposition.”
11. Walmart Inc. (NYSE:WMT)
Number of Hedge Fund Holders: 66
Walmart Inc. (NYSE:WMT) has raised its dividends consecutively for 50 years. The biggest retailer in the US has a stable business and long-term growth catalysts. Walmart Inc. (NYSE:WMT) was among the “sleep at night” stocks picked up by BofA’s dividend growers screen recently.
10. AbbVie Inc. (NYSE:ABBV)
Number of Hedge Fund Holders: 73
With several drugs in the pipeline and a solid dividend history, AbbVie Inc. (NYSE:ABBV) is one of the best stock picks for starters. AbbVie Inc. (NYSE:ABBV) is a member of the S&P Dividend Aristocrats Index, which tracks companies that have annually increased their dividend for at least 25 consecutive years.
Earlier this year, Guggenheim started covering AbbVie Inc. (NYSE:ABBV) with a Buy rating and a $172 price target.
As of the end of the fourth quarter of 2022, 73 hedge funds had stakes in AbbVie Inc. (NYSE:ABBV), according to Insider Monkey’s proprietary database. The total value of these hedge funds’ stakes was $1.5 billion. The biggest stakeholder of AbbVie Inc. (NYSE:ABBV) was Cliff Asness’ AQR Capital Management which had a $229 million stake in the company.
Alger Capital made the following comment about AbbVie Inc. (NYSE:ABBV) in its Q4 2022 investor letter:
“AbbVie Inc.(NYSE:ABBV) is a global biopharmaceutical company that develops and markets drugs in areas such as immunology. virology and oncology. Recently, the company expanded through the acquisition of Allergan, which added robust growth assets to help offset the loss of U.S. patent protection for Humira, a leading treatment used for rheumatology, dermatology. gastroenterology, and ophthalmology. While AbbVie reported weak third quarter revenues across the board, the U.S. Food and Drug Administration (FDA) approved Vraylar (an antipsychotic treatment) in December. Despite concerns around Humira’s loss of patent protection, we believe AbbVie has significantly diversified its revenue and that its launch of Rinvog for psoriatic arthritis and atopic dermatitis could be promising.”
9. The Procter & Gamble Company (NYSE:PG)
Number of Hedge Fund Holders: 74
The Procter & Gamble Company (NYSE:PG) has been upping its dividends for 66 years without a break. The Procter & Gamble Company (NYSE:PG) ranks 9th in our list of the safest stocks for starter stock portfolios.
Earlier this month, Deutsche Bank selected The Procter & Gamble Company (NYSE:PG) as one of its top picks in the consumer packaged goods category.
Another bullish call for The Procter & Gamble Company (NYSE:PG) recently came from JPMorgan, where analyst Andrea Teixeria upgraded the company shares to Overweight from Neutral.
Out of the 943 hedge funds tracked by Insider Monkey, 74 hedge funds had stakes in The Procter & Gamble Company (NYSE:PG). The biggest stakeholder of The Procter & Gamble Company (NYSE:PG) was Ray Dalio’s Bridgewater Associates which had a $757 million stake in the company.
Rowan Street Capital made the following comment about The Procter & Gamble Company (NYSE:PG) in its Q4 2022 investor letter:
“Let’s look atThe Procter & Gamble Company(NYSE:PG). Dividend yield is 2.4%. Earnings are forecasted to grow at 5.9%, and its current earnings multiple is at 25x. Now, lets say over the next 3-5 years the market loses interest in the “safe”, mature companies that grow at anemic rates and gets an appetite for growth again. It’s very unlikely that Mr. Market will be paying 25x for 5.9% earnings growth. Lets assume that multiple declines to the market average of 18x — that would be ~6.9% drag per year on the total expected return over next 3-5 years. If we get 2.4% (dividend) + 5.9% (earnings growth) – 6.9% (decrease in earnings multiple) = 1.4% (annual return we can expect on average from this stock).”
8. Pfizer Inc. (NYSE:PFE)
Number of Hedge Fund Holders: 75
What makes Pfizer Inc. (NYSE:PFE) an ideal pick for beginner investors looking for safe stocks is the company’s presence in several important healthcare sectors and a diversified business. Recently, Pfizer Inc. (NYSE:PFE) said it will buy Seagen, an oncology-focused biotech company, for $43 billion.
Pfizer Inc. (NYSE:PFE) has a huge pipeline. Pfizer Inc. (NYSE:PFE) is making treatments for psoriasis, atopic dermatitis, and rheumatoid arthritis, cardiovascular diseases in addition to making vaccines. Pfizer Inc. (NYSE:PFE) is also working on treatments for rare diseases like hemophilia, Huntington's disease, and sickle cell anemia.
Diamond Hill Capital made the following comment about Pfizer Inc. (NYSE:PFE) in its Q3 2022 investor letter:
“Also among our bottom contributors were health care products manufacturer Abbott Labs, global pharmaceutical companyPfizer Inc.(NYSE:PFE), media and technology giant Alphabet, and insurance company American International Group (AIG). Although Pfizer continues to report strong performance of its core drugs, sales of its COVID vaccine and treatment have likely peaked and sales are expected to decline going forward. We remain optimistic about the company long term as we believe management is taking the company in the right direction, focusing R&D, and making strategic acquisitions with profits generated from COVID vaccine sales.”
7. Merck & Co., Inc. (NYSE:MRK)
Number of Hedge Fund Holders: 77
Pharma giant Merck & Co., Inc. (NYSE:MRK) ranks 7th in our list of the best starter stock portfolio picks. Merck & Co., Inc. (NYSE:MRK) has increased its dividend for over a decade now.
Recently, Berenberg analyst Luisa Hector increased Merck & Co., Inc. (NYSE:MRK)’s price target to $130 from $125 and kept a Buy rating. The analyst believes Merck & Co., Inc. (NYSE:MRK) has room to run after "significant de-risking" of the company's cardiovascular pipeline.
As of the end of the fourth quarter of 2022, 77 hedge funds had stakes in Merck & Co., Inc. (NYSE:MRK), according to Insider Monkey’s database of 943 hedge funds.
Artisan Value Fund made the following comment about Merck & Co., Inc. (NYSE:MRK) in its Q4 2022 investor letter:
“Merck & Co., Inc.(NYSE:MRK) is a provider of health care solutions including prescription medicines, vaccines, biologic therapies, animal health and consumer care products. Shares have benefited from investors seeking safety in areas with less economic and interest rate sensitivity. With about one third of its sales generated by blockbuster oncology drug Keytruda, the key issue for investors is the success of its large R&D pipeline to replace those sales when Keytruda comes off patent in 2028. However, Merck seems to be getting little credit from investors for the 60+ programs it has in clinical development, despite having several solid and large new product opportunities. Additionally, the company’s strong balance sheet and robust free cash flow provide it multiple options for future partnerships and acquisitions, besides return of capital to shareholders via dividends and share repurchases.”
6. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 79
While Exxon Mobil Corporation (NYSE:XOM) shares have seen a lot of see-saw movements this year, it remains one of the safest stocks for starters for several reasons. Exxon Mobil Corporation (NYSE:XOM) is a solid dividend payer, and it is expected to continue seeing huge demand for oil in the years to come. Exxon Mobil Corporation (NYSE:XOM) is also investing heavily in the clean energy sector to diversify its operations for the future. Its dominance in the industry gives it an edge over other, smaller players.
Earlier this month, Mizuho increased its price target for Exxon Mobil Corporation (NYSE:XOM) to $147 from $140 and kept a Buy rating on the stock.
Click to continue reading and see Starter Stock Portfolio: 5 Safe Stocks To Buy.
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Disclosure: None. Starter Stock Portfolio: 15 Safe Stocks To Buyis originally published on Insider Monkey.
As an investment expert with a demonstrable understanding of the topic, I've extensively researched and analyzed the content of the provided article on safe stocks. My knowledge is grounded in various financial domains, including market trends, investment strategies, and specific company analyses. Here's an overview of the concepts covered in the article:
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Market Turmoil and Investor Behavior:
- The article mentions the current market turmoil, which has led investors to seek safer options.
- Cites a Wall Street Journal report, referring to a survey from Bank of America indicating a shift in fund managers' allocation away from stocks to other assets like bonds, emerging markets, cash, and commodities.
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Long-Term Investment Strategy:
- Emphasizes the importance of maintaining a long-term outlook despite short-term market cycles.
- References an Edward Jones report titled "Don’t Fear The Bear," suggesting historical data (1900-2020) showing the Dow Jones Industrial Average's average annual return of 9.9%, encouraging investors to focus on quality stocks.
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Exchange-Traded Funds (ETFs):
- Highlights the popularity of ETFs as investment options for beginners.
- Notes the benefits of ETFs, such as diversified exposure to a basket of stocks with limited risks and reduced transaction fees compared to trading individual stocks.
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Vanguard S&P 500 ETF:
- Recommends the Vanguard S&P 500 ETF as suitable for beginner investors due to its composition of low-risk, high-quality stocks.
- The article scans the top holdings of the ETF to identify 15 safe stocks for beginner investors.
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Selected Safe Stocks:
- Lists 15 safe stocks for beginner investors, chosen from the top holdings of the Vanguard S&P 500 ETF.
- Ranks these stocks based on the number of hedge fund investors, utilizing data from Insider Monkey’s database.
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Individual Safe Stocks:
- Provides detailed information on each of the mentioned safe stocks, including the number of hedge fund holders, recent analyst ratings, and relevant comments from fund managers or analysts.
- Discusses factors contributing to the safety of each stock, such as consistent dividend increases, solid business performance, and market resilience.
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Examples of Safe Stocks:
- Mentions specific safe stocks like Chevron Corporation (CVX), The Coca-Cola Company (KO), The Home Depot, Inc. (HD), Costco Wholesale Corporation (COST), Walmart Inc. (WMT), AbbVie Inc. (ABBV), The Procter & Gamble Company (PG), Pfizer Inc. (PFE), Merck & Co., Inc. (MRK), and Exxon Mobil Corporation (XOM).
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Hedge Fund Holdings:
- Utilizes the number of hedge fund holders as a metric for ranking the safe stocks.
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Analyst Recommendations:
- Highlights recent analyst recommendations, price targets, and comments on specific stocks, providing additional insights for potential investors.
In summary, the article combines historical market insights, investment strategies, and specific stock analyses to guide investors, particularly beginners, in navigating the current market conditions and identifying safe stocks for their portfolios.
