In this article, we discuss the 10 best stocks to invest in for financial stability.
While we all might love the idea of investing in risk-free stocks, there’s no such thing as a stock that’s 100% safe. Even the best companies can face unexpected trouble, and it’s common for even the most stable corporations to get shaken up due to significant price volatility. This was evident during the early days of the COVID-19 pandemic when many strong companies experienced dramatic drops in stock prices. More recently, we saw this phenomenon in 2022 when rising interest rates, inflation, and international conflict shook the stock market.
Although 2023 started off on a decent note, the same can’t be claimed for the rest of the year if Barclays Capital Inc.’s predictions are anything to go by. The investment advisory firm says that 2023 will go down as one of the worst for the world economy in four decades. Additionally, Ned Davis Research Inc. puts the odds of a severe global downturn at 65%. However, most investment firms agree that the year will be incredibly uneven, with Deutsche Bank AG seeing the S&P 500 Index rising to about 4,500 in the first half, before falling 25% in the third quarter as a downturn bites — only to jump back up to 4,500 by end-2023 as certain investors tailgate a recovery.
Long-term investors ignore the agitating, short-term rise and fall of stock markets. Rather than getting caught up in the whirlwinds of uncertainty, they buy the shares of stable companies with reliable performance that’s measured in years, or even decades. Although still subject to volatility like every other stock, these recession-proof equities (see 10 Best Recession Proof Stocks To Invest In) include household names like Costco Wholesale Corporation (NASDAQ:COST), Intuit Inc. (NASDAQ:INTU), and UnitedHealth Group Incorporated (NYSE:UNH).
Photo by Adam Nowakowski on Unsplash
Our Methodology
We scanned Insider Monkey’s database of more than 940 hedge funds and picked the top 10 stocks that can provide financial stability to investors. These stocks belong to defensive sectors like consumer staples, healthcare, and energy. Many of these companies have solid dividend histories and enjoy a stable market position. The list is arranged according to the number of hedge fund holders in each firm.
10 Best Stocks To Invest In For Financial Stability
10. McDonald’s Corporation (NYSE:MCD)
Number of Hedge Fund Holders: 57
McDonald’s Corporation (NYSE:MCD) is an American multinational fast food chain, founded in 1940 as a restaurant operated by Richard and Maurice McDonald. The company’s systemwide sales rose 5% on a year-over-year basis, while its global comparable sales rose 10.9% year-over-year in 2022. Although the fast-food chain stated that the currency rate has been fluctuating quite a bit, it sees its FY23 capital expenditures to be around $2.2-$2.4 billion. Additionally, at the end of January, the company revealed plans to open 1900 new restaurants this year globally on a gross basis.
On February 17, Loop Capital analyst Alton Stump maintained a Buy rating and $328 price target on McDonald’s Corporation in addition to raising his Q1 growth estimates in the U.S. to 7.5% from 5.5% and FY23 estimates to 4.9% from 4.4%. The analyst cited his latest McDonald’s U.S. franchisee checks indicating that same-store sales growth is once again off to a strong start to date in Q1.
According to Insider Monkey’s Q4 data, McDonald’s Corporation was part of 57 hedge fund portfolios, compared to 53 in the prior quarter. Ken Griffin’s Citadel Investment Group is the largest stakeholder of the company, with more than 2 million shares worth $529.3 million.
Much like Costco Wholesale Corporation, Intuit Inc., and UnitedHealth Group Incorporated, McDonald’s Corporation is considered a relatively safe bet.
9. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 58
The Coca-Cola Company (NYSE:KO) is an American multinational beverage corporation founded in 1892, best known as the producer of Coca-Cola. The company offers more than 200 brands—from sodas to waters, from coffees to teas, from juices to kombuchas, and a growing list of flavored alcohol beverages — in more than 200 countries and territories .The beverage giant announced its 61st consecutive dividend increase on February 16th, 2023, making it a reliable dividend king to invest in.
Morgan Stanley analyst Dara Mohsenian raised the price target on The Coca-Cola Company to $70 from $68 and kept an Overweight rating on the shares February 15. According to the analyst, the company’s “robust” 11% organic sales growth in Q4 in terms of unit cases represents its strong pricing power, limited demand elasticity, and solid execution. Mohsenian points to the company’s 7-8% organic sales growth guidance for FY23 as evidence of strong topline growth.
According to Insider Monkey’s data, 58 hedge funds were bullish on The Coca-Cola Company at the end of Q4 2022, compared to 59 funds in the last quarter. Warren Buffett’s Berkshire Hathaway held the largest stake in the company, with 400 million shares.
In its Q2 2022 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and The Coca-Cola Company was one of them. Here is what the fund said:
“Over the last year, we have repositioned our portfolio to navigate the course we see ahead. We added to more defensive areas of the portfolio like consumer staples (The Coca-Cola Company). While the next month or two will likely prove choppy on account of the Omicron variant, we believe that Omicron, like Delta, represents a speed bump on the way to recovery rather than a true change in course. We see strong economic momentum continuing in 2022 and we expect interest rates to rise. After a decade of remarkably low rates, we would not be surprised if this change in direction is accompanied by some fits and starts in the markets. With our emphasis on pricing power, purposeful sector exposure, valuation discipline, and a strong dividend profile, we believe we are well-positioned for the year ahead.”
8. NextEra Energy, Inc. (NYSE:NEE)
Number of Hedge Fund Holders: 61
NextEra Energy, Inc. (NYSE:NEE), which, together with its affiliated entities, is the world’s largest generator of renewable energy from the wind and sun and a world leader in battery storage. Through its subsidiaries, the company generates clean, emissions-free electricity from seven commercial nuclear power units in Florida, New Hampshire and Wisconsin.
Earlier this January, Wells Fargo analyst Neil Kalton raised the price target on NextEra Energy, Inc. to $110 from $105 on higher assumed NEER capital investment opportunities, influenced by his Generation Outlook 2050 analysis. While he believes that renewables are the key driver of NEER’s growth, he adds that other decarbonization-related verticals are emerging. Kalton maintained an Overweight rating on the shares of the company.
NextEra Energy, Inc. was popular among elite funds in Q4 2022, as 61 funds in Insider Monkey’s database owned stakes in the company. The collective value of these stakes is over $2.15 billion.
ClearBridge Investments mentioned NextEra Energy, Inc. in its Q3 2022 investor letter. Here is what the firm has to say:
“NextEra Energy, Inc. (NYSE:NEE) is an integrated utility business with a regulated utility operating in Florida and the largest wind business in the U.S. NextEra’s regulated business includes Florida Power & Light, which serves nine million people in Florida. NextEra’s share price rose along with the passage of the U.S. Inflation Reduction Act, which considerably expands support for renewable energy.”
7. Walmart Inc. (NYSE:WMT)
Number of Hedge Fund Holders: 66
Walmart Inc. (NYSE:WMT) is an American multinational retail corporation that operates a chain of hypermarkets, discount department stores, and grocery stores in the United States. On January 5, the retail giant announced the success of its drone delivery program in 2022. The company completed more than 6,000 deliveries via drone during the year from its 36 drone delivery hubs across seven states.
On February 15, Cowen analyst Oliver Chen raised the price target on Walmart Inc. to $180 from $175 and kept an Outperform rating on the shares. The analyst raised his estimates on prospects of better sales trends and the likelihood of solid store traffic trends, particularly in January.
Evercore ISI added Walmart Inc. to the firm’s “Tactical Outperform” list on February 17, noting that the stock has lagged the S&P and S&P Retail Index by 5% and 17%, respectively, year-to-date. The firm believes that a 2023 guide down is likely already reflected in the stock performance and sees upside to Q4 results driven by stronger sales and share gains in grocery.
According to Insider Monkey’s third quarter database, 66 hedge funds were long Walmart Inc., compared to 68 funds in the earlier quarter. The collective stakes held by elite hedge funds in Q4 2022 increased to $4.85 billion from $4 billion in Q3 2022.
In its Q2 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Walmart Inc. was one of them. Here is what the fund said:
“The pandemic has created challenges for businesses large and small; one major challenge for large essential retailers such as ClearBridge holdings Home Depot, Walmart Inc. and Costco have been ensuring adequate staffing to meet demand under trying conditions. All three instituted enhanced pay practices during the pandemic, with raises, unplanned bonuses and other benefits helping compensate employees for their efforts in a difficult environment. In September 2020 Walmart raised wages for 165,000 employees, including a number of entry positions to $15 an hour. It followed this in February with a raise for 425,000 workers that moved its average pay above $15 an hour.”
6. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 66
On February 2, Truist analyst Scot Ciccarelli raised the price target on Costco Wholesale Corporation to $568 from $538 and maintained a Buy rating on the shares. According to the analyst, Costco’s January sales were “solid”, and its extreme value proposition will enable the company to continue gaining more members and market share, particularly if the economy continues to soften.
According to Insider Monkey’s data, 66 hedge funds were long Costco Wholesale Corporation at the end of Q4 2022, compared to 69 funds in the earlier quarter. Ken Griffin’s Citadel Investment Group is the largest stakeholder of the company, with 2.5 million shares worth $1.12 billion.
Similar to PepsiCo, Inc. (NASDAQ:PEP), Intuit Inc., and UnitedHealth Group Incorporated, Costco Wholesale Corporation has historically provided investors with protection against market downturns.
Here is what Cooper Investors Global Equities Fund has to say about Costco Wholesale Corporation in its Q3 2022 investor letter:
“The US economy continues to run hot – the labor market is extremely tight and a number of executives we spoke to described their challenges in retaining staff and preventing competitors from poaching talent. Industrial companies in particular continue to see record backlogs, with the easing of logistics and supply chain constraints only just starting to have an impact on deliveries and lead times.
In terms of inflationary pressures, the vast majority of our holdings have been able to leverage strong market positions and stakeholder relationships to push pricing through in 2022 such that minimal impact to earnings has occurred. Clearly this is not a lever that can be pulled indefinitely but the more experienced management teams have kept some of their powder dry. Our meeting with management at Costco in Seattle was memorable for several reasons but one was their latent ability to increase member pricing which they have not done in over 5 years (and thus likely to do in 2023)…
…To conclude we’ll return to our meeting with Costco mentioned earlier. The business quality is no secret after decades of incredible execution, but the meeting gave us renewed conviction around Value Latencies in terms of the runway for growth, the focus on enhancing customer value, Costco’s vast buying power (it purchases 30% of the world’s jumbo cashews as one example) and management’s feral focus on the business model and cost discipline.”
5. PepsiCo, Inc. (NASDAQ:PEP)
Number of Hedge Fund Holders: 70
PepsiCo, Inc. is an American multinational food, snack, and beverage corporation headquartered in Harrison, New York, in the hamlet of Purchase. A household name when it comes to financial safety, the company expects its North America beverage and convenient foods businesses to remain resilient and its international markets to perform well despite greater foreign exchange volatility in many markets.
Earlier this December, Argus analyst John Staszak raised his price target on PepsiCo, Inc. to $206 from $195 and kept a Buy rating on the shares. According to the analyst, the company is well-managed, offers a valuable brand portfolio, and continues to generate solid growth amid weak demand for many consumer staples.
PepsiCo, Inc. is a popular dividend stock among hedge funds, as 70 funds in Insider Monkey’s database owned stakes in the company in Q4 2022. These stakes are valued at over $4.42 billion collectively.
Lindsell Train mentioned PepsiCo, Inc. in its Q3 2022 investor letter. Here is what the firm has to say:
“At this point, it may help to give a further example of these self-reinforcing moats to illustrate the idea, drawing from the consumer franchises side of our portfolio. In our view, strong consumer brands can similarly exhibit Lindycompatible anti-ageing properties. Consider, that the longer a company invests in its brands through advertising and R&D, the stronger and more resonant they may get. When successful, a self-sustaining feedback loop is established, whereby it becomes ever harder to recreate a heritage-rich brand from scratch, raising barriers to entry, and proportionately increasing its likely lifespan. There are plenty of long-lived portfolio franchises I could reference here, but I’ve gone with PepsiCo (NYSE:PEP); partly because we have good time-series stats on it (beware data bias!) but also, as I hope will become evident, because Pepsi over its 129 years has succeeded in creating some wonderfully deep moats.
With Pepsi Cola you get the flagship soft drinks brand, which is both global and generational, but you also get the Frito-Lay salty snacks portfolio assembled alongside it, claiming nearly 40% of the global market. That’s ten-times greater than the nearest competitor and likely higher than the next 65 competitors combined. These are exceptionally strong global bands with market shares to match; the long-term empirical result being Pepsi’s dividend record which over the past 66 years (as far back as we’ve been able to go) has compounded at an annualised rate of 10%. Pepsi is no ‘in at the ground floor’ start-up today, but it wasn’t six decades ago either. Early growth investor Philip Fisher put it well when in 1958 (two years into Pepsi’s current winning streak) he wrote of “companies which in spite of outstanding prospects of major further growth are so financially strong, with roots going so deep into the economic soil, that they qualify under the general classification of ‘institutional stocks’”. PepsiCo fits this description well…” (Click here to see the full text)
4. The Procter & Gamble Company (NYSE:PG)
Number of Hedge Fund Holders: 74
The Procter & Gamble Company is an American multinational corporation that operates through five segments – Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine & Family Care. The FMCG giant has remained consistently profitable for decades and has raised its dividends for 66 years consecutively.
This past December, Deutsche Bank analyst Steve Powers raised the price target on The Procter & Gamble Company to $162 from $156 and kept a Buy rating on the shares. Although the analyst stated that data points are “choppy,” he believes that there have been several positive developments for the markets over the past weeks, including lower-than-expected inflation in November, the Federal Reserve signaling a move to a more deliberate pace of hikes, and signs of progress away from China’s Zero COVID policy.
According to Insider Monkey’s data, 74 hedge funds were bullish on The Procter & Gamble Company at the end of December 2022, compared to 69 funds in the prior quarter. Ray Dalio’s Bridgewater Associates is a prominent stakeholder of the company, with 4.99 million shares as of the fourth quarter.
Rowan Street Capital mentioned The Procter & Gamble Company in its Q4 2022 investor letter. Here is what the firm has to say:
“Let’s look at The 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).”
3. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 84
Johnson & Johnson is an American multinational corporation founded in 1886 that develops medical devices, pharmaceuticals, and consumer packaged goods. The company has been raising its dividend payouts for 61 years and the stock has a 5-year dividend CAGR of 6.03%.
Earlier this December, Citi analyst Joanne Wuensch raised her price target on Johnson & Johnson to $205 from $198 and maintained a Buy rating on the shares. The analyst states that “many headwinds remain” for the North America medical supplies and technology group in 2023, but these should ease in the second half of next year, alleviating operating margin pressures
At the end of Q4 2022, 84 hedge funds in Insider Monkey’s database owned stakes in Johnson & Johnson, down from 85 in the previous quarter. The collective value of these stakes is over $5.57 billion. Among these hedge funds, John Overdeck and David Siegel’s Two Sigma Advisors is a prominent stakeholder in Q4.
Here’s what Distillate Capital Partners LLC said about Johnson & Johnson in its Q2 2022 investor letter:
“Johnson & Johnson was among the 2 largest trims at around 1% each. Each stock was up 1% in the quarter compared to the 16% price decline for the S&P 500 and the positions were reduced as the valuations became somewhat less appealing, though still attractive enough to warrant inclusion.”
2. Intuit Inc. (NASDAQ:INTU)
Number of Hedge Fund Holders: 92
Intuit Inc. is an American software company specializing in business and financial management software. The firm provides its customers with a platform that allows them to keep up to date with compliance requirements and manage their financial operations.
On February 24, BMO Capital analyst Daniel Jester raised the price target on Intuit Inc. to $462 from $448 and maintained an Outperform rating on the shares. The company’s Q2 results were “solid” despite a “tough backdrop” as it benefited from an early tax season thus far. The firm added that the strength of Intuit’s core platform and the stock’s reasonably attractive valuation causes him to maintain a favorable view on the company.
As of the end of the fourth quarter of 2022, 92 hedge funds reported owning stakes in Intuit Inc., up from 86 hedge funds in the previous quarter. This shows that hedge fund sentiment for Intuit Inc. is positive. Henry Ellenbogen’s Durable Capital Partners is the leading shareholder for the quarter.
Here is what Fundsmith had to say about Intuit Inc. in its 2022 yearly investor letter:
“Take the example of Microsoft and Intuit Inc. (NASDAQ:INTU). Microsoft shares are currently being valued at a P/E ratio of 25.0 times the consensus EPS estimate for the fiscal year ending June 2023. Meanwhile, Intuit is being valued at 28.4 times the non-GAAP consensus estimate for the fiscal year ending July 2023. Many investors and analysts may accept that Intuit is trading at a higher multiple given expectations of greater growth potential. However, Intuit removes share-based compensation from their non-GAAP EPS whereas Microsoft does not. Given that Intuit’s GAAP EPS guidance for the year ending 31st July 2023 is $6.92–$7.22, its non-GAAP guidance is $13.59–$13.89, and the consensus estimate for 2023 EPS is at $13.69, it seems clear that most sell-side analysts are accepting the company’s non-GAAP adjustments, which includes the removal of some $1.8bn of share-based compensation, in their estimates. If we include the impact of share-based compensation in Intuit’s 2023 EPS to make a more apples-to-apples comparison with Microsoft based upon GAAP EPS, Intuit’s 2023 EPS would be closer to $9, meaning that the shares would be trading at a multiple of about 43 times. I think investors and analysts may find a premium of 14% for Intuit over Microsoft (28.4 times versus 25.0 times) to be reasonable. I’m not so sure they are fully aware that Intuit shares are actually trading at a premium of 73% if share-based compensation is treated in the same manner between the two companies.
Many investors and analysts, including us, look to cash flow metrics more than accrual profits. Unfortunately, share-based compensation may cause distortions in cash flow metrics as well, even when they follow GAAP. Under GAAP, share-based compensation is added back in the cash flow from operating activities, which in turn is used in the computation of free cash flow. ..” (Click here to read the full text)
1. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 110
UnitedHealth Group Incorporated is a for-profit American multinational managed healthcare and insurance company based in Minnetonka, Minnesota. It operates through four segments – UnitedHealthcare, Optum Health, Optum Insight, and Optum Rx. Arguably one of the stable stocks, the company announced guidance for 2023, with revenue forecasted to be between $357 billion to $360 billion.
Earlier this January, Loop Capital analyst Joseph France raised the price target on UnitedHealth Group Incorporated to $590 from $575 and kept a Buy rating on the shares. The analyst cited the company’s “strong” Q4 results and 2023 outlook. While the management’s guidance is unchanged, France believes it to be “no less remarkable” given last year’s tough comparison.
According to Insider Monkey’s fourth quarter database, 110 hedge funds were long UnitedHealth Group Incorporated, the same as the last quarter. Rajiv Jain’s GQG Partners is the leading position holder in the company, with 3.96 million shares worth $2.1 billion.
Here is what Stewart Asset Management has to say about UnitedHealth Group Incorporated in its Q3 2022 investor letter:
“Looking at the Great Recession which began at year-end 2007 and lasted to mid-year 2009 is helpful too. Our four largest current holdings in the portfolio weathered that period well. UnitedHealth’s earnings were resilient. While it reported modestly down earnings in 2008, its earnings rebounded quickly to record highs in 2010 and the shares responded strongly in anticipation of this.”
Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily enewsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below. You can also take a look at 25 Most Famous Companies in the World and 10 Set-It-and-Forget-It Stocks to Buy According to Financial Media.
Suggested articles:
This article is originally published at Insider Monkey.
