In this article, we discuss the 10 best conservative stocks to buy.
Analysts have been revising their economic forecasts for the beginning of 2022 as growth expectations take a major hit due to the concerns surrounding the spread of the Omicron variant of COVID-19. Even though major governments across the world have ruled out major lockdowns and even reduced isolation periods following positive tests, businesses are suffering as people prefer to stay indoors and reduce travel. Thousands of flights over the holiday period were cancelled by major airlines due to virus-related issues and staff shortages. US officials are now looking towards decreasing pressure on hospitals.
In this bleak scenario, Mark Zandi, the chief economist at Moody’s Analytics, has revised the first quarter Gross Domestic Product (GDP) forecast for the US in 2022 to 2.2% from 5.2% to reflect the slowdown. Meanwhile, the US Federal Reserve, which has so far refused to raise interest rates, has forecast that the economy will grow by 4.4% in 2022.
What are Conservative Stocks?
Investors who want to guard their portfolios against looming risks should consider some of the top conservative stocks to buy now. Conservative stocks are companies that have developed a solid business reputation at the market through steady growth in profits and revenues over a long period of time, sometimes even decades. These firms are generally considered a good hedge against inflation at the market since their shares are less prone to volatility than those of other companies. Some examples in this regard include Apple Inc. (NASDAQ:AAPL), Johnson & Johnson (NYSE:JNJ), and The Coca-Cola Company (NYSE:KO), among others discussed in detail below.
Our Methodology
The companies that can weather the impact of economic downturns better than most others were selected for the list through a careful assessment of business fundamentals and analyst ratings to provide readers with some context for their investment choices.
Hedge fund sentiment was included as a classifier as well. The hedge fund sentiment around each stock was calculated using the data of 867 hedge funds tracked by Insider Monkey.
Conservative Stock Portfolio: Best Stocks To Buy
10. BHP Group (NYSE:BHP)
Number of Hedge Fund Holders: 18
BHP Group (NYSE:BHP) engages in the natural resources business. The stock has climbed in recent days on the back of above normal iron imports from China that have pushed the prices of the metal to their highest in over a month. Over half of the revenues of BHP Group are derived from iron ore sales. With the US manufacturing sector growing stronger as well, BHP Group offers investors reliability in a volatile market with a high dividend yield and a decent dividend history stretching back more than a decade.
The emergence of ESG trends that support nickel and copper mining, with respect to the use of the metals in products such as EVs, also looks set to benefit BHP Group in the long run. The firm has low net debt and analysts expect returns to ramp up heading into 2022.
Washington-based investment firm Fisher Asset Management recognizes the potential and is a leading shareholder in BHP Group with 8 million shares worth more than $447 million.
Just like Apple Inc., Johnson & Johnson, and The Coca-Cola Company, BHP Group is one of the stocks that value investors are buying.
In its Q1 2021 investor letter, Harding Loevner, an asset management firm, highlighted a few stocks and BHP Group was one of them. Here is what the fund said:
“Our purchase of Australian mining company BHP is an example of a quality company at a moderate valuation that should deliver attractive long-term returns. We believe the market has undervalued its enduring competitive advantage due to its low cost iron and copper mining operations which has allowed the company to deliver consistent profits and cash flows across the inevitable ups and downs of the global metals cycle. While the variability of commodity prices prevents BHP from scoring in the top ranks of measured quality, we are willing to bear some of that uncertainty in return for a more attractive valuation given the company’s strong business fundamentals.”
9. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 55
Even though Costco Wholesale Corporation (NASDAQ:COST) has faced tough competition from the likes of Amazon and Walmart in recent years, the company has managed to grow revenues and invest in ecommerce. Argus analyst Chris Graja recently raised the price target on Costco Wholesale Corporation stock to $610 from $515 and maintained a Buy rating. The analyst highlighted the resilient nature of Costco Wholesale Corporation in an investor note, saying that “even the periods of severe stock-market turbulence have proven to be good times for the stock”.
Costco Wholesale Corporation posted earnings for the first fiscal quarter on December 9, reporting earnings per share of $2.77, beating estimates by $0.12. The revenue over the period was $50 billion, up 16% year-on-year.
The stock has been a hedge fund favorite for many years and latest filings show that 55 hedge funds in the database of Insider Monkey hold stakes worth $4.39 billion in Costco Wholesale Corporation, up from 54 in the preceding quarter worth $4.32 billion.
Just like Apple Inc., Johnson & Johnson, and The Coca-Cola Company, Costco Wholesale Corporation is one of the stocks that value investors are buying.
In its Q1 2021 investor letter, Ensemble Capital, an asset management firm, highlighted a few stocks and Costco Wholesale Corporation was one of them. Here is what the fund said:
“We saw these dynamics at play in the Fund. Some of the worst-performing stocks this quarter were among our best performers in Q1 2020. Another example was the market’s reaction to Costco Wholesale (1.5% weight in the Fund) during the quarter. From December 31, 2020 to March 8th, Costco shares declined 17% and dropped below their pre-pandemic high. The common rationale offered by sell-side analysts was that Costco would face difficult one-year “comps” (i.e. same-store sales, which compare sales from stores open for at least a year). Because so many consumers rushed to Costco ahead of shelter-in-place and subsequent quarantines, it will be harder for Costco to meaningfully beat those results when compared year-over-year. That may indeed be true, but we struggle to understand how Costco could be “less valuable” than it was a year earlier when it concurrently increased its membership base by over 7%, or 3.9 million members. With membership renewal rates around 90%, the vast majority of the new customers Costco brought in last year will be around for years to come.
Analysts also complained about Costco raising its already industry-leading minimum wage to $16/hour, with an average “effective” pay of $23-$24/hour when you include overtime and bonuses. Costco paying its employees “too much” has been a common gripe of Wall Street analysts for at least two decades. While the extra pay does indeed impact short-term profit margins, it also serves to make Costco more durable, as its flywheel (i.e. a virtuous value cycle) starts with happy employees. A 20-year chart of Costco stock price is evidence that this strategy works and we’re confident that it will continue to work.”
8. Oracle Corporation (NYSE:ORCL)
Number of Hedge Fund Holders: 56
Oracle Corporation (NYSE:ORCL) operates in the technology sector but has over the years developed a stable business model that is attracting the attention of value investors. Oracle Corporation pays a regular and healthy dividend with eight consecutive years of dividend growth and counting. Oracle Corporation has also recently stepped into the healthcare sector with the purchase of health tech firm Cerner for $28 billion.
Deutsche Bank analyst Brad Zelnick has a Buy rating on Oracle Corporation stock with a price target of $120. In a recent investor note, the analyst said that investors will soon come to appreciate the Cerner acquisition by Oracle Corporation.
Hedge fund interest in the firm is as solid as ever. At the end of the third quarter of 2021, 56 hedge funds in the database of Insider Monkey held stakes worth $3.4 billion in Oracle Corporation, up from 55 in the preceding quarter worth $2.8 billion.
Just like Apple Inc., Johnson & Johnson, and The Coca-Cola Company, Oracle Corporation is one of the stocks that value investors are buying.
Here is what Ariel Investments has to say about Oracle Corporation in its Q1 2021 investor letter:
“A temporary factor might be a downturn in the high-yield bond market driving up LBO financing costs for the decline in 2021 GAAP revenue for Oracle Corporation (ORCL) due to a change in accounting methods. In all these examples, stock prices were driven well-below our calculations of intrinsic value. We invested in each company with good outcomes. Later, we will offer instances when this strategy is not successful.”
7. Verizon Communications Inc. (NYSE:VZ)
Number of Hedge Fund Holders: 57
Verizon Communications Inc. (NYSE:VZ) is one of the big telecom firms that stand to benefit from the increased spending on 5G infrastructure across the United States in the coming years. In addition to this business opportunity, telecom providers have recently also turned their attention towards “tracking” customer preferences through the phones they offer, unlocking digital advertisement potential over which tech giants presently hold a large monopoly. Verizon Communications Inc. has potential to earn billions in profits through these ads alone in the coming years.
Verizon Communications Inc. recently declared a quarterly dividend of $0.64 per share, in line with previous. The forward yield was 5.03%. Verizon Communications Inc. has been paying dividends to shareholders for over two decades.
This stellar record is one reason why 57 hedge funds in the database of Insider Monkey held stakes worth $10.3 billion in Verizon Communications Inc. at the end of the third quarter of 2021.
Just like Apple Inc., Johnson & Johnson, and The Coca-Cola Company, Verizon Communications Inc. is one of the stocks that value investors are buying.
In its Q1 2021 investor letter, Miller/Howard Investments, an asset management firm, highlighted a few stocks and Verizon Communications Inc. was one of them. Here is what the fund said:
“We sold Verizon (VZ) based on concerns over how much they might spend in ongoing spectrum auctions. Management may legitimately view spending billions of dollars to expand their spectrum holdings as necessary, but we believe the payoff will be slow and will make it challenging to grow the dividend at a good pace.”
6. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 58
Oppenheimer analyst Brian Nagel recently upgraded The Home Depot, Inc. (NYSE:HD) stock to Outperform from Perform with a price target of $470, backing The Home Depot, Inc. to continue solid sales and profit expansion in the coming months as underlying demand growth within the space persists in the post-pandemic economy. The Home Depot, Inc. has performed exceedingly well during financial crises and as inflation fears rise, value investors have been loading up on the stock to guard their portfolios against risk.
Latest filings show that Washington-based investment firm Fisher Asset Management is a leading shareholder in The Home Depot, Inc. with 7.4 million shares worth more than $2.4 billion.
The Home Depot, Inc. posted earnings for the third quarter on November 16, reporting earnings per share of $3.92, beating estimates by $0.55. The revenue over the period was $36 billion, up close to 10% year-on-year.
In addition to Apple Inc., Johnson & Johnson, and The Coca-Cola Company, The Home Depot, Inc. is one of the stocks on the radar of elite investors.
In its Q1 2021 investor letter, Ensemble Capital, an asset management firm, highlighted a few stocks and The Home Depot, Inc. was one of them. Here is what the fund said:
“Notable contributors to the Fund’s returns this quarter (included) Home Depot. Home Depot (8.9% weight in the Fund) continued to benefit from a red-hot housing and home improvement market, delivering record financial performance in 2020. As a high return on invested capital business, any step-up in growth results in considerable shareholder value creation. While 2021 comparable sales may not yield impressive headline results, we believe there are several secular tailwinds supporting continued housing investment, including millennials entering prime household formation/peak earnings years, relatively low interest rates, and government policies.
Home Depot (8.9% weight in the Fund): The big orange sign of Home Depot is a familiar sight for homeowners across the country. Despite the rise of Amazon, Home Depot has generated outstanding results for shareholders during the rise of eCommerce, even as Home Depot’s end market in housing suffered the worst collapse in a century. Over the last fifteen years, a period which began at the peak of the housing bubble, Home Depot’s stock has generated annual returns of 17% a year, outperforming the S&P 500 by approximately 7% a year.
But while homeowners can attest to their continued shopping at Home Depot, they may not be aware that only about half the company is dedicated to serving Do It Yourself homeowners, with the other half acting as a key supplier to small contractors – which the company calls Pros – who depend on Home Depot as a mission critical business partner.
While the company does not report on their contractor business separately from their homeowner business, they have regularly offered comments indicating that contractors make up just 4% of their customer base, but about 45% of revenue. Basic math implies…”[read the entire letter here]
5. Lowe’s Companies, Inc. (NYSE:LOW)
Number of Hedge Fund Holders: 60
On December 15, Lowe’s Companies, Inc. announced guidance numbers for the next fiscal year, outlining that it expected total sales of around $95 billion and gross margin rate of more than 33%, up from previous year. Lowe’s Companies, Inc. also announced share repurchases of around $13 billion for the period. The stock has surged over 55% in the past twelve months based on outstanding operating results and a market shift towards high-quality value plays.
Lowe’s Companies, Inc. is a leading home improvement retailer and has improved margins this year by 240 basis points even though there has been a significant increase in costs due to supply chain disruptions and rising prices.
Hedge funds remain heavily invested in Lowe’s Companies, Inc. as it enters 2022. At the end of September, 60 hedge funds in the database of Insider Monkey held stakes worth $5 billion in Lowe’s Companies, Inc..
In its Q2 2021 investor letter, Pershing Square Holdings, Ltd., an asset management firm, highlighted a few stocks and Lowe’s Companies, Inc. was one of them. Here is what the fund said:
“Since the onset of the COVID-19 pandemic, Lowe’s has experienced a significant acceleration in demand driven by consumers nesting at home, higher home asset utilization and the reallocation of discretionary spend. In the three years since Marvin Ellison became CEO, the company has executed a multi-year transformation plan to bolster Lowe’s retail fundamentals, reduce structural costs, expand distribution capabilities, and modernize systems and the company’s online capabilities. This transformation has allowed Lowe’s to meet consumers’ needs during this highly elevated period of demand, and positioned the company for continued success and accelerated earnings growth.
In the second quarter, Lowe’s reported U.S. same-store-sales growth of 2.2%. Growth was bolstered by strength from the critical Pro consumer, where Lowe’s reported growth of 21%, off setting moderating do-it-yourself (“DIY”) demand. While DIY demand has receded from peak-COVID-19 periods, Pro customer demand has accelerated as consumers engage Pro’s for larger renovation projects.
Notwithstanding the headline growth figure, which is impacted by comparisons to COVID-19-affected months from spring of 2020, demand remains extremely elevated relative to baseline 2019 levels. July same-store-sales, the most recent full month for which the company has provided disclosure, were up 31.5% on a two-year basis and management indicated August month-to-date results are substantially similar. More significantly, Lowe’s reported Pro growth of +49% on a two-year basis in Q2, evidence that Lowe’s focus on the Pro is bearing fruit. Share gains with the critical Pro customer will provide a tailwind to growth that should allow Lowe’s to outperform market-level growth going forward.
Even as the robust demand experienced during the height of COVID-19 stabilizes at a new base, the medium and longer-term macro environment remain very attractive for the home improvement sector and Lowe’s in particular. This favorable context for the sector is evidenced by consumers’ enhanced focus and appreciation of the importance of the home, higher home asset utilization, rising home prices, historically low mortgage rates, an aging housing stock, strong consumer balance sheets, and the general lack of new housing inventory.
Against this backdrop, Lowe’s is focused on taking market share and expanding margins. Pro penetration today is still only 25% of revenue as compared to Lowe’s medium-term target of 30% to 35%, providing a runway for continued abovemarket growth. Management continues to execute against various operational initiatives (Lowe’s “Perpetual Productivity Improvement” program) designed to improve the customer experience while enhancing the company’s margins and longterm earnings power. The company’s long-term outlook implies significant opportunity for continued margin expansion and earnings appreciation as it executes its business transformation.
Lowe’s currently trades at approximately 17 times forward earnings. Home Depot, its closest competitor, trades at approximately 22 times forward earnings despite Lowe’s superior prospective earnings growth. We find this valuation disparity to be anomalous in light of Lowe’s strong execution and potential for further operational optimization.”
4. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 61
The Coca-Cola Company has navigated challenging economic conditions for the past several decades and emerged stronger out of a crisis more often than not. This is because The Coca-Cola Company has a stable business, strong pricing power, and a management that executes robust growth plans without compromising on value. The Coca-Cola Company has been a constant presence on many value portfolios over the past few decades.
For example, Nebraska-based firm Berkshire Hathaway is a leading shareholder in The Coca-Cola Company with 400 million shares worth more than $20 billion. Legendary value investor Warren Buffett leads Berkshire.
On December 13, investment advisory JPMorgan upgraded The Coca-Cola Company stock to Overweight from Neutral with a price target of $63. Analyst Andrea Teixeira issued the ratings update.
3. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 88
Johnson & Johnson is one of the famous conservative stocks on the market with a dividend history stretching back more than five decades. Analysts are urging investors to load up on Johnson & Johnson before the firm goes ahead with plans to split into two separate units in the next two years. Johnson & Johnson has a strong product line and a robust drug pipeline that looks set to grow in the coming months.
Johnson & Johnson is also one of the firms marketing a COVID-19 vaccine. As a new variant of the virus rises, vaccine sales for Johnson & Johnson are set to increase further.
At the end of the third quarter of 2021, 88 hedge funds in the database of Insider Monkey held stakes worth $6.8 billion in Johnson & Johnson, the same as in the previous quarter worth $7 billion.
2. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 95
In late November, UnitedHealth Group Incorporated (NYSE:UNH) issued guidance numbers for the fiscal year 2021-2022 ahead of an investor event, outlining that it expected revenue to reach up to $320 billion against consensus estimates of $310 billion. The projected cash flows from operations stood at around $24 billion. In early December, UnitedHealth Group Incorporated declared a quarterly dividend of $1.45 per share, in line with previous.
UnitedHealth Group Incorporated stock has been among the top hedge fund picks for many years now. Data compiled by Insider Monkey shows that 95 hedge funds were long UnitedHealth Group Incorporated stock with stakes worth $11.7 billion at the end of September.
In its Q2 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and UnitedHealth Group Incorporated was one of them. Here is what the fund said:
“A good way to conceptualize how we think about portfolio construction is to picture a pyramid. At the bottom of the pyramid are the durable compounding growth companies that form the strong foundation, resilience and consistency for the Strategy. We think these companies should comprise just under half of portfolio assets and feature annual revenue growth rates ranging from two times GDP up to 20% as well as healthy free cash flow generation.
UnitedHealth Group, a name we have owned in the Strategy since 1992, is a good example of a long-term compounder, having grown its revenue base from approximately $600 million to north of $260 billion over that time frame. It remains constantly focused on investing in new growth drivers such as telemedicine and health care analytics. Broadcom and Comcast have delivered similar long-term appreciation through a combination of organic growth, capital deployment into new and adjacent opportunities through merger and acquisition activity as well as returning capital to shareholders through buybacks and dividends.”
1. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 120
Apple Inc. is the largest tech company in the world. Analysts expect Apple Inc. to cross $3 trillion in market capitalization before the end of the year. However, the rise of a new virus variant, which has led to store closures in some regions of the world, could upset growth plans. However, the release of new products, including an AR headset, could more than offset some of these concerns for Apple Inc..
Morgan Stanley analyst Katy Huberty has an Overweight rating on Apple Inc. stock with a price target of $200. The analyst notes that major smartphone markets like China were posting high iPhone shipment growth, pointing to surprising upside in phone production for Apple Inc..
At the end of the third quarter of 2021, 120 hedge funds in the database of Insider Monkey held stakes worth $146 billion in Apple Inc., compared to 138 in the preceding quarter worth $146 billion.
In its Q1 2021 investor letter, Distillate Capital, an asset management firm, highlighted a few stocks and Apple Inc. was one of them. Here is what the fund said:
“Apple is an even more notable situation and one that highlights our free cash valuation methodology and bears further discussion given its Q3 ‘20 sale from our strategy. For an extended period, Apple was extraordinarily inexpensive on a free cash flow basis and was the largest position in our strategy, exceeding 5% of the portfolio.”
You can also take a peek at 10 Companies that Benefit From Crypto Mining and 12 Best Artificial Intelligence Stocks To Invest In Right Now.
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This article is originally published at Insider Monkey.
