In this article, we discuss the 5 best conservative stocks to buy. If you want to read our detailed analysis of these stocks, go directly to the Conservative Stock Portfolio: 10 Best Stocks To Buy.
5. Lowe’s Companies, Inc. (NYSE:LOW)
Number of Hedge Fund Holders: 60
On December 15, Lowe’s Companies, Inc. (NYSE:LOW) 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. (NYSE:LOW) 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. (NYSE:LOW) 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. (NYSE:LOW) 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. (NYSE:LOW).
In its Q2 2021 investor letter, Pershing Square Holdings, Ltd., an asset management firm, highlighted a few stocks and Lowe’s Companies, Inc. (NYSE:LOW) 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 (NYSE:KO) 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 (NYSE:KO) has a stable business, strong pricing power, and a management that executes robust growth plans without compromising on value. The Coca-Cola Company (NYSE:KO) 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 (NYSE:KO) 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 (NYSE:KO) 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 (NYSE:JNJ) 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 (NYSE:JNJ) before the firm goes ahead with plans to split into two separate units in the next two years. Johnson & Johnson (NYSE:JNJ) has a strong product line and a robust drug pipeline that looks set to grow in the coming months.
Johnson & Johnson (NYSE:JNJ) is also one of the firms marketing a COVID-19 vaccine. As a new variant of the virus rises, vaccine sales for Johnson & Johnson (NYSE:JNJ) 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 (NYSE:JNJ), 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 (NYSE:UNH) declared a quarterly dividend of $1.45 per share, in line with previous.
UnitedHealth Group Incorporated (NYSE:UNH) 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 (NYSE:UNH) 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 (NYSE:UNH) 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. (NASDAQ:AAPL) is the largest tech company in the world. Analysts expect Apple Inc. (NASDAQ:AAPL) 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. (NASDAQ:AAPL).
Morgan Stanley analyst Katy Huberty has an Overweight rating on Apple Inc. (NASDAQ:AAPL) 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. (NASDAQ:AAPL).
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. (NASDAQ:AAPL), 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. (NASDAQ:AAPL) 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.”
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