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Periods of stock market volatility highlight the importance of building a stable stock portfolio that can ride out market lows. Every investor wants to generate significant returns; however, creating a portfolio that stands the test of time is even more valuable. If you’re an investor looking to build a portfolio to withstand market volatility, you are probably looking for safe investments that have a history of maintaining their values during times of exceptional market volatility. Read on to learn more about examples of low-risk stocks you can buy to construct a portfolio that helps you weather tumultuous periods in the stock market.
Best Safe Stocks to Buy Right Now
As the world continues to reel from massive economic volatility, investing in safe stocks can give you peace of mind. Although past performance is not a guarantee of future success, the following companies have shown resilience and consistency through the COVID-19 pandemic and beyond.
1. Amazon.com Inc. (NASDAQ: AMZN)
Amazon.com is one of the world’s most prominent online retailers, with more than $578 billion in gross sales coming in from 2021 alone. While the company’s stock value spiked during the COVID-19 pandemic and subsequently fallen below its highest value recorded during the beginning of the market frenzy, Amazon has bounced back considerably. Amazon also has a proven track record of returning to new heights even after major setbacks. For example, the online retailer lost a quarter of its value in 2016 but came back stronger after this period of economic uncertainty ended. This track record can make Amazon an attractive choice when building a long-term portfolio.
2. NVIDIA Corp. (NASDAQ: NVDA)
If you’ve attempted to purchase anything that requires a semiconductor within the last year, you probably paid more than you were expecting. The semiconductor chip industry shortage has made a wide range of consumer products more expensive, including everything from used cars to laptop computers. While this trend is likely to continue, chip manufacturer NVIDIA may be poised for a comeback after the shortage ends. NVIDIA produces semiconductor chips required for some of the top trends in tech, including artificial intelligence and cloud computing. As these industries are expected to continue to grow throughout the 2020s, now might be the right time to find an entry point to invest in this computing powerhouse.
3. Berkshire Hathaway Inc. (NYSE: BRK)
Berkshire Hathaway is a conglomerate holding company that owns some of the most well-known consumer brands in the United States. Some examples of subsidiary businesses owned by Berkshire Hathaway include insurance giant Geico, battery manufacturer Duracell and the Fruit of the Loom clothing brand. Berkshire Hathaway tends to invest in consumer goods businesses that do well in any economy, which can make it an ideal investment if you believe that a recession is one the horizon. The company also holds large investments in companies like Bank of America and Coca-Cola, further solidifying its diversity as a long-term investment.
4. Procter and Gamble Co. (NYSE: PG)
Procter and Gamble (NYSE: PG) is one of the world’s largest manufacturers of consumer goods. Examples of brands held under the Procter and Gamble name include laundry detergent manufacturer Tide, diaper manufacturer Pampers and toothpaste and oral healthcare brand Crest. Proctor and Gamble’s leading brands see sales of more than $1 billion annual in global sales, and about 55% of the company’s business comes from outside of the United States. Procter and Gamble has also increased its dividend for the past 65 years, indicating management’s optimism for the future of the consumer goods powerhouse.
5. Walt Disney Co. (NYSE: DIS)
Few entertainment companies show the diversity and strength of the Walt Disney Co. Best known for its movies and theme parks, Disney owns the rights to some of the most recognizable characters and franchises in the world, including Pixar animation studio and sports media outlet ESPN. Disney has recently entered into the content streaming video space with its Disney+ offering, converting its properties to Disney+ exclusives. As a premier name in American home entertainment, Disney’s wide-reaching portfolio of intellectual properties makes it a consistent option for investors.
How to Choose Safe Stocks
While you can always look up a list of low-risk stocks, learning to evaluate a stock's reliability on your own is essential. There are a few steps that you can take to determine if a particular company is safe to add to your investments, including the following.
Evaluate the Industry
When studying a company, first consider under what industry the corporation falls. For example, Apple Inc. (NASDAQ: AAPL) and Microsoft Corp. (NASDAQ: MSFT) are in the technology sector, while Coca-Cola Co. (NYSE: KO) and Amazon are in the consumer discretionary sector. Generally, industries related to consumer staples are considered more stable than emerging industries since people will always need necessities such as food, clothes, and household items, even during periods of low economic growth.
Many companies in technology are viewed as somewhat risky, especially those focused on emerging technology. Still, the largest companies in the sector that have displayed stable growth and have widespread adoption of their products tend to be reliable investment options. Technology continues to gain more of a foothold in everyday life, and established companies in this space are at the forefront of this expansion. By selecting a company from an established industry, you can have confidence that a steady stream of revenue will support the company even during periods of economic crisis.
Consider Market Capitalization
Market capitalization, the total value of the company's outstanding stock, is another essential factor in evaluating a stock's safety. You can find the market cap by multiplying the number of outstanding shares of a company by the share price. Often, large-cap companies are referred to as “blue chip stocks” and are likely to be included in large index funds.
Large-cap companies are recognized by a market cap of over $10 billion. Large-cap companies are considered conservative investments because to reach such a high valuation, they have delivered years of solid returns and risen to the highest level of business success. A company this rooted is unlikely to fail, even during times of market volatility.
Analyze Financial Factors
Safe stocks to invest in are characterized by several indicators of financial health. You can calculate the price-to-earnings (PE) ratio by dividing the share price by the company's earnings per share over the last year. A high PE ratio may signal the company is overvalued, while a low PE ratio may imply the stock is undervalued. Study the company's balance sheet and credit rating. Is it saddled with debt? A company with a poor credit rating is not creditworthy and likely to default. If a company defaults, the stock price will plummet. Other indicators to keep an eye on are earnings per share, dividend yield and projected earnings growth.
Safe investments will have a proven track record of financial success. While new stocks may show high returns, this does not necessarily mean that they are stable investments that will be able to make it through market lows. Instead, you want to look for a stock with a strong reputation and successful track record. To tell if a stock is showing consistent returns, check if it consistently paid dividends. While a stock might not be dramatically climbing in value, consistent dividends mean that the company has been able to maintain its returns to investors, which is a good sign when searching for long-term investments.
A critical aspect of selecting safe stocks and building a stable portfolio is diversification. It’s not a good idea to have all your eggs in one basket, for example, by investing only in multiple stocks within a single industry. Despite the relative strength of an industry, at times, global and economic factors that adversely affect particular sectors may come into play, lowering the value of all stocks in a sector.
When you diversify your stock portfolio, these price declines can be offset by unaffected investments in other industries. One way to diversify without investing in many different stocks is to invest in stock indexes or ETFs. These investments are traded like single company stocks; however, when you own a share, you actually invest in a basket of various securities within an industry or that follow an index like the S&P 500. By adding safe stocks to your portfolio, you can diversify your investments and set yourself up for long-term stability.
Do Safe Stocks Always Gain Value?
As much as it is hoped that quality stocks will continually gain value, all stocks fluctuate in value to some extent over time. Even safe stocks may experience times of resistance, mainly when the stock market as a whole is in a period of decline. While safe stocks may not always rise in value, they tend to show fewer price fluctuations when compared to competing investments.
A lower-risk stock differs from other investments because it can withstand the test of time, riding out market lows and highs while providing relatively steady returns. You may be inclined to think that a stock producing the highest returns would be the best investment; however, many new companies provide explosive returns but plummet in price when they encounter market resistance. Instead of looking for a chart that only goes up, look for steady growth over many years.
When investing in safe stocks, it’s important to remember that ups and downs are expected and that panic selling during a low period is often one of the worst things you can do. When you invest in a low-risk stock with a proven track record and strong company finances, the price will most likely rebound naturally as the market stabilizes. Remember that the stock market is never guaranteed and that even stocks that experts consider safe can plummet in value. This is part of the reason why it’s so important to diversify your portfolio with a wide range of investment types and sectors.
Invest in the Best Safe Stocks With These Top Brokers
Before you can begin buying and selling investments, you’ll need to create an account with an online broker. Your online broker will provide you with a trading platform and online resources you can use to begin building your portfolio. Benzinga offers insights and reviews on the following online brokers. Consider beginning your search with a few of the links below before you decide where to open an account.
Improve Your Cash Flow with Safe Stocks
Finding the best safe stocks for your portfolio depends on your goals, risk tolerance and other factors unique to you. However, there are certain stocks that tend to be considered “safe” investments due to their track record of consistent performance over time. Use this list and your own research to invest in the stocks that are right for you.
Frequently Asked Questions
Are certain stocks safe to invest in?
Certain stocks can be safer to invest in than others. These stocks are characterized by a large market capitalization, proven track record, strong reputation and multiple financial health indicators. Remember that even if a stock is safe, it may go through periods of fluctuation, and as with any trade in the stock market, returns are not guaranteed.
Will safe stocks lose money?
Safe stocks will lose money at times, typically in response to economic crises. However, if you choose to hold the stock through low periods, it is likely to return to higher prices.
What are the best safe stocks?
Finding the best stocks is easy – just look at the article above to find Benzinga’s list of the best safe stocks.