The point of investing is to make money, not to lose it. Many who were hurt badly in the 2008 market crash have never returned to the stock market because they simply don’t know which stocks are safe to buy. There is a lot of advice out there about safe stocks but what can you believe and how should you proceed? As an example of current advice on this topic the Motley Fool suggests 3 safe stocks you can buy right now.
As recent events have clearly shown, even large-cap stocks that were thought to be stable can crater in the blink of an eye. It turns out there’s a lot to be said for taking a defensive approach to investing. With this in mind, our Foolish contributors offer three stock picks below that should perform admirably in nearly any kind of market.
Their three suggestions are Kimberly-Clark (KMB), Johnson & Johnson (JNJ) and VISA (V). The reasons for these three picks are instructive for deciding which stocks are safe to buy.
This is a consumer products company that sells paper towels, feminine products, bathroom tissues and diapers. No matter where the economy is going people need and buy these products. This stock barely flinched during the depths of the Great Recession and has outperformed the S&P 500 three fold in the last decade.
Like Kimberly-Clark this company sells consumer products like allergy medicines and bandages but they also sell cancer drugs and are a leader in R&D. They also barely flinched during the depths of the Great Recession and have performed two and a half times better than the S&P 500 in the last decade.
Unlike the banks that issue their cards Visa takes on no credit risk. They simply take a very small but persistent percentage of each sale that used on of their cards. Multiply billions of credit cards by hundreds of sales by their percentage and you get a huge and steady cash flow no matter how the market is doing.
Which stocks are safe to buy are those that have a huge margin of safety. As we mentioned in our article years ago about margin of safety, “The official definition of margin of safety is that it is the difference between the market price of a stock and its intrinsic value. However, there is more to the intrinsic value of a stock than a quick look at expected financials over the years.” These are three examples that one might not otherwise think of.
- Ignored stocks that are just starting to get going
- Mismanaged companies with patents which they are not monetizing
- Faltering old line companies with lots of unused or poorly used real estate
And of course old line consumer products companies like Kimberly-Clark and companies with money in the bank typically lead the list.
Stocks That Are a Safe Bet
Investopedia has suggestions to increase the odds in your favor in regard to which stocks are a safe bet. These are four qualities that they think are important.
- Stable profits and growth
- Low Volatility
- Large cap stocks
In the end common sense will prevail. Pick stocks that you understand and are easy to analyze. The famous investor Warren Buffett has said that he can guess what a snickers bar will sell for in a decade but not what an iPhone will be worth. Which stocks are safe to buy for you should be the ones that you understand.