As the Nasdaq starts to plateau and more economists signal volatility ahead, it might once again be time to look for a port in the storm. Last year, investors that bought into the safest stocks had solid insulation from the widespread market selloff. In most cases, such investors were able to outperform the broader market, simply by staying afloat.
That hasn’t been the case this year, since the explosive AI tech rally has turned many of the so-called defensive stocks into relatively unattractive bets. However, I believe investors and big money investors on Wall Street are likely done with this rally. Soon, many will being taking profits and reinvesting their winnings into safer stocks – and you should too.
Of course, I would like to make it clear that I’m not a “doomer.” I have been very optimistic about the market since the second half of last year, and my countless articles about growth stocks since then are more than enough proof. I will still take a bullish stance on certain stocks, as there are great still opportunities in specific sectors. But I also believe that moving your assets around to make the best use of the current environment is a good idea for maximizing your gains.
With that said, here are seven safe stocks I think investors should think about rotating into right now.
One of the most resilient stocks during the last recession was McDonald’s (NYSE:MCD), which actually gained 8.5% in 2008 while the S&P 500 plunged 38.5%. The fast-food giant proved that Americans are loyal to their burgers and fries, even in tough times. If we look at more recent events, such as the pandemic, McDonald’s has recovered remarkably well from it too. And that’s despite the company obviously operating in the restaurant industry.
McDonald’s reported a 13.62% increase in revenue and a 97% surge in earnings per share in its second quarter of 2023, beating analysts’ expectations on both counts. Its global comparable sales soared 11.7%, with double-digit growth across all segments. That sort of flashy growth in a business that’s usually considered dull makes me very optimistic that it will do well during periods of turbulence in the future.
As a sweetener, McDonald’s also raised its quarterly dividend to $1.52 per share, marking its 45th consecutive year of dividend increases. With a dividend yield of 2.1% and a payout ratio of 49%, McDonald’s offers both income and stability to investors. I think this stock is a no-brainer for anyone looking for a safe haven in August.
Flowers Foods (FLO)
Another stock that has shown remarkable consistency over the years is Flowers Foods (NYSE:FLO), the maker of bread, buns, rolls, cakes, and other bakery products. The stock is a personal favorite of mine with regards to its consistency. And once you look at the chart, it’s easy to realize why.
Sure, Flowers Foods underwent a correction recently due to weaker-than-expected earnings for fiscal 2023. But I believe this dip opens up a great buying opportunity for long-term investors. Flowers Foods has a history of overcoming short-term dips, rebounding with ease.
The company has increased its sales for 18 of the past 23 years, and its earnings have grown consistently, too. Notably, Flowers Foods has also raised its dividend every year since 2001, and currently pays a quarterly dividend of $0.23 per share, providing a dividend yield of 3.7%. If it keeps up the growth trajectory, that will augment some very impressive gains.
PepsiCo (NYSE:PEP) is a behemoth that is likely to weather any storm in the market. The company has a diversified product portfolio encompassing the food, snack, and beverage industries. PepsiCo has been delivering strong results amid the pandemic, thanks to its balanced mix of categories and geographies.
In its second quarter of 2023, PepsiCo reported a 10.3% increase in revenue and a 93.2% rise in earnings per share, beating analysts’ estimates. It also raised its full-year outlook for both metrics. Much like many of the other safest stocks on the market, PepsiCo pays a dividend to sweeten the deal. Currently, the company pays $1.265 per share, yielding 2.74% (on a forward basis). It has also increased its dividend for 52 consecutive years, making PepsiCo one of the most reliable dividend payers in the market.
Lowe’s (NYSE:LOW) is one of the largest home improvement retailers in the U.S., thus benefiting from the housing market boom and the surge in spending on home improvement projects during the pandemic. However, after the pandemic declined in severity, we also saw a cooldown in LOW stock, which declined by ~30% before returning to its original growth trajectory.
I woulds suggest that LOW stock is slightly “riskier” than the other safe stocks on this list. However, I believe it is a solid business to hold onto for the long-run. That’s because while the risk with this company largely stems from people’s fears about the housing market, over the long-term, the housing market tends to perform very well.
Additionally, like many of the other names on this list, Lowe’s has increased its dividend for 50 consecutive years, with its dividend now yielding almost 2%. These dividends greatly diminish the near-term risk of holding LOW stock, in my view.
Costco (NASDAQ:COST) operates a membership-based big box retail model, which provides a great deal of stability over time. In essence, Costco is able to generate recurring revenue, and bolster its customer loyalty.
This company is among the most diversified on this list, offering a wide range of products and services. These range from groceries and electronics to travel and optical. Costco has been among the names that thrived during the pandemic, but underwent a contraction once the period of valuation expansion was over. Much like Lowe’s, Cocsto appears to be back on track, with solid momentum seeing its recent earnings figures.
The company reported a modest 2% increase in net sales in Q2, but analysts expect 6.3% sales and 10.7% earnings per share growth for the full year. And, of course, COST stock comes complete with a forward dividend yield of 0.73%. This distribution is small, but will add up over time.
Dollar General (DG)
Dollar General (NYSE:DG) is one of the largest discount retailers in the U.S. The company offers a variety of products at low prices, including food, household goods, health and beauty products, apparel, and seasonal items. The company caters to low- and middle-income consumers, especially those who live in rural and suburban areas where other retailers are scarce or inconvenient. Dollar General has been growing steadily over the years, thanks to its store expansion strategy, merchandising initiatives, digital enhancements, and customer loyalty programs.
However, if you look at its stock chart, you may be disappointed. Yes, I admit that DG stock has declined over 36% from its peak in November last year. So, why is it here?
My argument here is that while Dollar General may not have posted the best near-term results of the companies on this list, most of its headwinds have been priced in. Additionally, this is a stock with a rather wide margin of safety, and a valuation which looks to be near its trough.
The company reported a 6.8% increase in net sales, and investors expect it to continue delivering similar sales growth in the future. Dollar General also pays a modest dividend, but I wouldn’t say the yield is the most reliable. The recent pullback in DG stock has inflated this yield slightly, but it has only been increasing for seven years consecutively.
Still, given the value here, I believe Dollar General is a very safe stock to buy in August.
Johnson & Johnson (JNJ)
Johnson & Johnson (NYSE:JNJ) is a healthcare giant that operates in three segments: pharmaceuticals, medical devices, and consumer health. Writing about the safest stocks, it inadvertently becomes a discussion about consumer staples companies. Well, this one is, too.
However, the company’s unique exposure to the healthcare industry makes it a solid pick for investors seeking more growth. That’s also why it’s at the bottom of this list, since there is more volatility with this name.
Johnson & Johnson reported a 27% increase in revenue and a 49% rise in earnings per share for its second quarter of 2023. It also raised its full-year guidance for both metrics. Currently, the company pays a quarterly dividend of $1.06 per share, yielding 2.5%. It has increased its dividend for 59 consecutive years, making it one of the most reliable dividend payers in the market.
On the date of publication, Omor Ibne Ehsan 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.