In case you haven't noticed yet, the stock market this year has been a lot different than in 2013. Not only have we seen much lower overall returns so far, we have experienced more volatility too.
There is no better example of this than the Russell 2000. It surged a remarkable 37% in 2013. But so far this year, it has fallen about 4% and is down about 8% from its all-time high. And some industries, like speciality retail or high tech - have fared much worse.
However, there are pockets of safety in this market. So don't just stuff your money under the mattress or into ultra-low yielding bonds or savings accounts just yet.
Large cap stocks, for example, have generally held up much better than small caps. The large cap S&P 500 index has gained a respectable 7% year-to-date, for instance. And lower beta stocks have generally outperformed higher beta stocks. Utilities, which trailed the market badly last year, are leading the way this year.
Clouds of Uncertainty
One of the biggest reasons for the recent market pullback, particularly in smaller, higher beta stocks, has been uncertainty overseas. Tensions have been bubbling up in places like Russia and Ukraine along with the Middle East. And economic uncertainty in China and Europe has also riled investors.
This has led to a flight to safety, with the US dollar strengthening and U.S. Treasuries rallying.
Another cloud hanging over the stock market has been monetary policy. While the Fed will likely end its quantitative easing program next month, the timetable for when it will hike interest rates is still very much up in the air.
Where to Find Shelter
There's no telling when this recent market turbulence will end. Although the U.S. economy continues to hum along and earnings have been solid, investors don't seem too eager right now to jump into a stock market that is still near its all-time highs.
So while I believe the longer-term outlook for stocks still looks fine, investors should consider adding some stability to their portfolios in case the recent pullback gets worse.
But where should investors look?
The stocks I believe that are most likely to outperform in this environment are (1) large cap, (2) low beta stocks, with (3) solid earnings momentum, that (4) pay a decent dividend (but don't have too high of a yield), (5) have relatively conservative debt levels (i.e., their interest expenses won't skyrocket if rates rise), (6) are reasonably priced, and (7) have relatively low overseas exposure (i.e., their business is not highly susceptible to a strong dollar and a weak global economy).
3 Safe Stocks for an Uncertain Market
Here are three stocks that meet these criteria:
Lockheed Martin Corporation (NYSE:LMT)
Market Cap: $57.1 billion
Beta: 0.71
Zacks Rank: 2
Dividend Yield: 2.9%
Debt/Equity: 1.4
12-month Forward P/E: 15x
% Revenue Overseas: 17%
Macy's Inc (NYSE:M)
Market Cap: $20.8 billion
Beta: 0.97
Zacks Rank: 3
Dividend Yield: 2.1%
Debt/Equity: 1.2
12-month Forward P/E: 12x
% Revenue Overseas: less than 10%
Dr Pepper Snapple Group Inc (NYSE:DPS)
Market Cap: $12.5 billion
Beta: 0.07
Zacks Rank: 3
Dividend Yield: 2.6%
Debt/Equity: 1.1
12-month Forward P/E: 17x
% Revenue Overseas: 12%
The Bottom Line
Don't let the recent market volatility scare you away from all stocks. These 3 stocks look well-positioned to deliver solid total returns, even in this uncertain market.
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