After a brutal start to the year, the stock market has posted some mild recovery lately. But it’s not out of the woods yet. With economic data looking weak and high levels of inflation setting the stage for more major interest rate hikes, it is possible that the market could be in for more bearish action.
While turbulence for the broader market could cause more big sell-offs for riskier stocks, investing in sturdy, dependable companies is a way to seize opportunity if the market continues to rebound while also minimizing downside risk if volatility continues. Read on to see why a panel of Motley Fool contributors identified these three safe stocks as strong buys in today’s uncertain market.
Take advantage of this cheap valuation and huge dividend
Keith Noonan (Altria Group): While unit sales for cigarettes have been falling in recent years, Altria Group (MO -0.34%) has managed to keep sales consistent and grow earnings thanks to price hikes and other initiatives. The company expects to grow earnings between 4% and 7% this year, and the business is generating strong free cash flow to support a generous dividend. The stock currently yields roughly 8.2%, and Altria has earned Dividend King status by raising its payout for 52 years running.
Altria has admittedly taken a big loss on its $12.8 billion investment in vape company Juul as regulations and other headwinds have tamped down on the value of the business and its growth opportunity. However, the company still looks to be in solid shape, and its relatively sturdy business and great dividend could help investors score returns in today’s challenging market.
The tobacco giant’s stock saw a big sell-off in June after the Food & Drug Administration (FDA) issued a ban on the sale of Juul’s e-cigarette products, but it looks like much of that shock has already been digested from a valuation perspective . The ban was subsequently halted in response to Juul challenging it in court, but Altria took another $1.26 billion write-down on its investment, and it now values its position at just $450 million.
With Altria now down roughly 7.5% year to date on the heels of the Juul ban announcement and subsequent impairment charge, the stock looks cheaply valued and likely has limited downside. Shares currently trade at roughly nine times this year’s expected earnings and offer an attractive risk-reward proposition for income-seeking investors.
This store chain specializes in saving consumers money
James Brumley (Dollar General): It’s clear that higher prices are prompting consumers to rethink their spending on almost everything, including food.
According to research outfit InMarket, between October 2021 and June 2022 (when inflation’s been at its highest), spending on groceries sold by discount store chains like Dollar General (DG 0.72%) and Aldi grew 71%. Meanwhile, despite their newfound pricing power, conventional grocery stores’ sales of those same items are down 5% for the same nine-month stretch. Consumers — even high-earning consumers — are trading down for affordability. With the prices of food expected to remain high for at least the near future, don’t be surprised to see this trend persist.
There are several ways to plug into the dynamic, but my favorite one is the previously mentioned Dollar General. In fact, it may be the perfect way to capitalize on the current economic situation. Not only does it offer the most grocery options among the dollar stores, but its location strategy is also starting to pay off in a big way. Roughly 70% of its stores are located in communities with populations of less than 20,000, which often don’t have many other grocery options. With the price of gas still sky-high and subsequently making even modest drives to a mainstream grocer an unaffordable outing, being nearby to millions of consumers is a big deal.
To this end, Dollar General’s top line is projected to rise nearly 10% this year.
Procter & Gamble is an impressive long-term growth story
Daniel Foelber (Procter & Gamble): When a stock falls 6% in a day — as was the case with Procter & Gamble (PG 0.05%) on July 29 — it may not seem like a very safe investment. Yet big swings in the price action of stocks are simply the price of admission that long-term investors are used to enduring. The reward for outlasting the volatility can be decades of compounded gains and a steady stream of passive income from dividend stocks.
Procter & Gamble has continued to make a name for itself as one of the most reliable dividend stocks on the market. It starts with an industry-leading portfolio of well-known products and branding that has given P&G the ability to grow its global sales and earnings. Management deserves credit for making the company leaner over the years by focusing on the strengths of its best brands instead of expanding the brand count at the expense of quality.
P&G has raised its dividend for 66 consecutive years and continues to buy back a considerable amount of its own stock. In fiscal 2022, it paid $8.8 billion directly to shareholders through the dividend and repurchased $10 billion worth of P&G stock. With a 2.6% dividend yield and a recession-resistant product mix of consumer staples, Procter & Gamble is as reliable a dividend stock as they come.
Daniel Foelber has no position in any of the stocks mentioned. James Brumley has no position in any of the stocks mentioned. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.