In this article, we will take a look at the 10 best long term low risk stocks to buy.
As the latter part of 2022 unfolded, artificial intelligence stocks emerged as a beacon of hope for the market amid rapid and substantial interest rate hikes by the Federal Reserve, coupled with an inflationary spike triggered by the Russian invasion of Ukraine. Now, with the first quarter of 2024 past us, major stock indexes have surged to unprecedented heights, setting new records. Earlier this March, all three major stock indexes witnessed surges, with the Dow Jones Industrial Average seeing a substantial increase of 401.37 points, closing at a notable 39,512.13. Likewise, the S&P 500 surpassed the significant threshold of 5,200 for the first time, recording a rise of 0.89%, while the Nasdaq Composite experienced a notable surge of 1.25%, concluding at an impressive 16,369.41.
A Federal Reserve survey released on April 17 revealed a slight expansion in U.S. economic activity from late February through early April. The survey’s findings were disclosed a day after Fed Chair Jerome Powell shifted from previous guidance regarding potential cuts to the benchmark interest rate. Powell emphasized the necessity of maintaining restrictive monetary policy for a prolonged period due to consistently robust inflation readings surpassing expectations. Until recently, Fed policymakers had been encouraged by data indicating a decline in inflation, which had previously surged to a 40-year peak. Despite vigorous economic growth and a low unemployment rate, inflation had been trending towards the Fed’s 2% target rate. However, this trend has stalled and reversed, casting doubt on the Fed’s ability to enact rate cuts as initially planned. Investors now anticipate the first rate cut to occur in September, with diminishing prospects for a subsequent cut, with the Fed maintaining its policy rate within the current 5.25%-5.50% range following its April 30-May 1 policy meeting, consistent with its stance since July last year.
Of course, many investors and firms still believe this to be nothing more than a minor setback. BlackRock, Inc. (NYSE:BLK) in its recent Weekly Commentary report stated that it anticipates a shift in earnings growth beyond the tech sector, particularly towards industrials and materials. Despite concerns about Middle East tensions affecting crude oil prices and inflation, the firm asserts that the overall performance of the U.S. economy remains robust, citing indicators such as GDP growth, employment numbers, and consumer spending.
See Also: 13 Best Low Volatility Stocks to Buy According to Hedge Funds.
In addition, on a global scale, the International Monetary Fund (IMF) has revised its growth forecasts upward by 0.3% from October levels. The IMF now expects global growth to reach 3.2% in 2024 and 2025, similar to the levels experienced in 2023. It foresees “stronger activity” from the U.S., China, and other major emerging markets, while weaker activity is predicted in the Euro area. Additionally, the IMF forecasts median inflation to decrease to 2.8% by the end of 2024 and 2.4% in 2025, compared to 4% at the end of 2023.
Low Risk Investing
The historical outperformance of low risk stocks challenges a fundamental principle of finance theory, which suggests that higher risk is typically associated with higher returns. Surprisingly, academic research has consistently shown that low-volatility stocks have outperformed the market over much of the past century. Unlike conventional wisdom, studies indicate that less volatile stocks tend to deliver superior returns over the long term, partly by minimizing losses during market downturns. With lower exposure to market fluctuations, these stocks may not experience the same highs during bull markets, but they also endure fewer losses during market crashes. Consequently, these “Steady Eddies” tend to accumulate more of their gains over the entirety of a market cycle. The report further states that:
“Since 1973, the least volatile quintile of global stocks delivered returns that were one-third higher than the market, 20% less volatility. This performance generated a more than 50% higher Sharpe ratio—or absolute return relative to risk.”
Another avenue to capitalize on low risk investments involves investing in low volatility ETFs, which function as strategic investment instruments with long-term asset allocation strategies, enabling investors to effectively mitigate risk. Historically, minimum volatility indexes have demonstrated reduced volatility compared to broader market indices. In January of this year, Christine Benz, director of personal finance and retirement planning at Morningstar, recommended that young investors focus on constructing diversified portfolios using low cost mutual funds and ETFs instead of individual stocks to minimize risks:
“If there’s a single investment type where there is a lot of data to support that, where you’ll have a good outcome, it’s using broad market index funds.”
With global geopolitical conditions contributing to market volatility, investors would do well to seek refuge in proven safe stocks to protect their investments. In that regard, some of the best low risk stocks to invest include UnitedHealth Group Incorporated (NYSE:UNH), Johnson & Johnson (NYSE:JNJ), and Berkshire Hathaway Inc. (NYSE:BRK-B), among others listed below.
Our Methodology
To identify the best long term low risk stocks, we sought stocks with a beta value below 1.0, robust fundamentals, favorable analyst ratings, and positive analyst price targets as of April 17. Further refining our criteria, we excluded stocks with market caps less than $10 billion, and those with unstable dividend payouts. The remaining stocks underwent evaluation using Insider Monkey’s database of elite hedge funds from the fourth quarter of 2023. Our list comprises the top 10 stocks ranked by hedge fund sentiment, arranged in ascending order of hedge fund shareholders.
Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
10. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 57
Beta Value: 0.77
Costco Wholesale Corporation (NASDAQ:COST) operates a global network of membership warehouses, known primarily under the “Costco Wholesale” brand. These warehouses offer high-quality, brand-name products at significantly lower prices compared to traditional wholesale or retail outlets.
In its quarterly report ending February 18, 2024, Costco Wholesale Corporation (NASDAQ:COST) announced a non-GAAP EPS of $3.71, surpassing market expectations by $0.07. However, the reported revenue of $58.44 billion fell short of Wall Street estimates by $690 million.
Insider Monkey’s fourth-quarter database revealed bullish sentiments from 57 hedge funds towards Costco Wholesale Corporation (NASDAQ:COST), a decrease from 65 funds in the previous quarter. Fisher Asset Management, led by Ken Fisher, holds the largest position in the company, with 2.8 million shares valued at $1.8 billion.
Madison Sustainable Equity Fund stated the following regarding Costco Wholesale Corporation (NASDAQ:COST) in its fourth quarter 2023 investor letter:
“Costco Wholesale Corporation (NASDAQ:COST) reported solid holiday results and announced a special dividend of $15 per share. Earnings were better than expected driven by better gross margin. Same store sales were 3.9% with solid traffic. Costco also noted better discretionary trends and solid seasonal sales.”
Much like UnitedHealth Group Incorporated (NYSE:UNH), Johnson & Johnson (NYSE:JNJ), and Berkshire Hathaway Inc. (NYSE:BRK-B), Costco Wholesale Corporation (NASDAQ:COST) ranks as one of the best long term stocks to invest in.
9. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 62
Beta Value: 0.59
The Coca-Cola Company (NYSE:KO) is widely acknowledged as one of the premier low-risk investments, renowned for its production of the iconic beverage, Coca-Cola. Apart from its flagship product, the company actively engages in the manufacturing, distribution, and promotion of a diverse array of non-alcoholic beverage concentrates, syrups, and notably, alcoholic beverages within the beverage industry.
On March 7, investment advisory firm Argus reaffirmed a Buy rating on The Coca-Cola Company (NYSE:KO) stock and adjusted the price target to $70 from $67.
As of December 2023, Insider Monkey’s tracking identified 62 hedge funds with stakes in The Coca-Cola Company (NYSE:KO), an increase from 58 in the prior quarter. The total value of these stakes amounted to nearly $27 billion.
Hayden Capital made the following comment about The Coca-Cola Company (NYSE:KO) in its third 2023 investor letter:
“It’s not just emerging markets either, where one could argue a “scarcity premium” given fewer quality public companies. Even in the US, The Coca-Cola Company (NYSE:KO) trades at ~30x P/E despite having the same earnings as 10 years ago.
Both of these companies actually have lower revenues than 10 – 15 years ago too, indicating that their profit growth is mostly from margin expansion. This can only last for so long before there’s no more excess expenses left to cut.
I find it ironic that all these companies trade as “bond-equivalents” in the minds of investors – even commanding lower yields than US treasuries, the safest security in the world. But it’s clear that their businesses are not nearly as safe. Coca-Cola is facing disruption risk from consumers shifting to new, heathier beverage brands.
But these companies are ~35% more expensive than US Treasuries, despite the heightened risk. On a risk-adjusted basis, one could argue the implied premium is even higher.”
Perhaps the explanation is simply the price volatility difference between these stocks and treasuries over the last two years. For example, 10-year Treasury bonds are down ~-20% since the beginning of 2022. By comparison, KO and PG are remarkably down only -4 – 6% over that time frame.”
8. PepsiCo, Inc. (NASDAQ:PEP)
Number of Hedge Fund Holders: 64
Beta Value: 0.54
Based in Purchase, Harrison, New York, PepsiCo, Inc. (NASDAQ:PEP) is a prominent American multinational corporation operating in the food, snack, and beverage sector. Renowned for its financial stability, the beverage giant has consistently increased its dividends for over 51 years. As of April 17, it offers a quarterly dividend of $1.27 per share, resulting in a dividend yield of 2.99%.
Insider Monkey’s database for Q4 2023 reveals that 64 hedge funds disclosed holding stakes in PepsiCo, Inc. (NASDAQ:PEP), slightly down from 65 in the previous quarter. The collective value of these stakes is approximately $4.55 billion.
7. CVS Health Corporation (NYSE:CVS)
Number of Hedge Fund Holders: 67
Beta Value: 0.55
CVS Health Corporation (NYSE:CVS) is a prominent player in the healthcare sector, boasting a vast network of retail pharmacies and clinics nationwide. Under various brands such as CVS Pharmacy, CVS Caremark, and Aetna, it offers a comprehensive range of healthcare services.
Insider Monkey’s database, tracking 933 hedge funds, reveals that as of the fourth quarter of 2023, 67 hedge funds held positions in CVS Health Corporation (NYSE:CVS). Notably, Marshall Wace LLP, led by Paul Marshall and Ian Wace, emerged as a significant investor with a substantial stake in the company valued at $382.67 million.
6. The Procter & Gamble Company (NYSE:PG)
Number of Hedge Fund Holders: 71
Beta Value: 0.44
The Procter & Gamble Company (NYSE:PG), established in 1837 by William Procter and James Gamble, is a global consumer goods corporation headquartered in Cincinnati, Ohio. Known for its wide array of branded consumer packaged goods, the company operates across segments including Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine & Family Care. Moreover, it has a longstanding history of rewarding shareholders with growing dividends for the past 67 years. As of April 17, The Procter & Gamble Company (NYSE:PG) offers a quarterly dividend of $1.00 per share, yielding 2.56%.
Insider Monkey’s database of Q4 2023 reveals that 71 hedge funds reported holding stakes in The Procter & Gamble Company (NYSE:PG), down from 75 in the previous quarter. The combined value of these stakes amounts to approximately $6 billion. Fisher Asset Management emerged as the company’s leading stakeholder in Q4 with over 10.5 million shares.
The Procter & Gamble Company (NYSE:PG) joins the ranks of UnitedHealth Group Incorporated (NYSE:UNH), Johnson & Johnson (NYSE:JNJ), and Berkshire Hathaway Inc. (NYSE:BRK-B) as one of the best long term low risk stocks.
5. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 81
Beta Value: 0.55
Founded in 1886, Johnson & Johnson (NYSE:JNJ) is an American multinational corporation celebrated for its advancements in medical devices, pharmaceuticals, and consumer packaged goods. Notably, the company’s pharmaceutical division has maintained an impressive track record of dividend growth for over 62 years. As of April 17, Johnson & Johnson (NYSE:JNJ) offers a quarterly dividend of $1.19 per share, equating to a dividend yield of 3.29%.
Insider Monkey’s database of Q4 2023 reveals that 81 hedge funds reported holding stakes in Johnson & Johnson (NYSE:JNJ), down from 84 in the preceding quarter. The total value of these stakes amounts to nearly $4 billion. Fisher Asset Management emerged as the company’s leading stakeholder in Q4 with more than 6.3 million shares.
4. Walmart Inc. (NYSE:WMT)
Number of Hedge Fund Holders: 85
Beta Value: 0.49
Walmart Inc. (NYSE:WMT), a prominent American retail giant headquartered in Bentonville, Arkansas, is renowned for its extensive network of hypermarkets, discount department stores, and strategically positioned grocery outlets across the United States. The company also operates various online marketplaces, including Walmart.com and Jet.com, offering customers a diverse range of products, from groceries to electronics and clothing.
In the fourth quarter of last year, Insider Monkey examined 933 hedge fund portfolios and found that 85 had acquired a stake in Walmart Inc. (NYSE:WMT). Fisher Asset Management, led by Ken Fisher, emerged as the largest investor in our database, with holdings valued at $1.5 billion.
3. Merck & Co., Inc. (NYSE:MRK)
Number of Hedge Fund Holders: 98
Beta Value: 0.41
Merck & Co., Inc. (NYSE:MRK), a distinguished American multinational pharmaceutical firm based in Rahway, New Jersey, has a lineage dating back to the Merck Group, founded in Germany in 1668. Initially serving as the American branch of this esteemed conglomerate, the company operates internationally under the names Merck Sharp & Dohme or MSD. With a track record of consistent dividend growth spanning 11 years, Merck & Co., Inc. (NYSE:MRK) presently provides shareholders with a quarterly dividend of $0.77 per share, yielding 2.46% as of April 17.
In the fourth quarter of 2023, 98 out of the 933 hedge funds polled by Insider Monkey had invested in Merck & Co., Inc. (NYSE:MRK). Fisher Asset Management, led by Ken Fisher, emerged as the largest shareholder with a stake valued at $1.4 billion.
2. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 113
Beta Value: 0.57
Based in Minnetonka, Minnesota, UnitedHealth Group Incorporated (NYSE:UNH) is a leading American multinational corporation specializing in managed healthcare and insurance services. Operating as a for-profit entity, the company is structured into four segments: UnitedHealthcare, Optum Health, Optum Insight, and Optum Rx. Renowned as a top revenue growth stock for investors, UnitedHealth Group Incorporated (NYSE:UNH) currently offers a quarterly dividend of $1.88 per share as of April 17.
During the quarter, UnitedHealth Group Incorporated (NYSE:UNH) witnessed a significant increase in hedge fund interest, with the number of hedge fund positions rising to 113 by the quarter’s end. This marked an increase from the 104 positions held in the previous quarter, with the combined value of these stakes exceeding $11.1 billion.
1. Berkshire Hathaway Inc. (NYSE:BRK-B)
Number of Hedge Fund Holders: 117
Beta Value: 0.89
Berkshire Hathaway Inc. (NYSE:BRK-B) operates as a diverse multinational conglomerate holding company headquartered in Omaha, Nebraska. Its primary revenue streams stem from the insurance sector, with profits strategically distributed across a broad spectrum of subsidiaries, equity holdings, and various financial instruments. The company’s resilience to market fluctuations is largely attributed to its well-diversified portfolio spanning multiple industries.
In the fourth quarter of last year, 117 out of the 910 hedge funds analyzed by Insider Monkey had invested in Berkshire Hathaway Inc. (NYSE:BRK-B). Among them, the largest investor was Michael Larson’s Bill & Melinda Gates Foundation Trust, with ownership of 19.9 million shares valued at $7.1 billion.
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Disclosure: None. 5 Best Long Term Low Risk Stocks to Buy was initially published on Insider Monkey.
