With the current declining market breadth and high beta areas of the market like biotech and growth stocks taking a major downturn, it’s clear that sentiment has shifted towards “risk-off” over the past few trading sessions. While it’s hard to determine whether or not this marks a trend change in the overall market, it’s clear that volatility might be a factor in our investment decisions for the near term. Whenever this type of shift occurs, money starts to find its way towards more conservative stocks that aren’t as susceptible to sharp market downturns.
The current relative strength in the consumer staples, utilities, and health care sectors is confirmation that riskier areas of the market might be losing steam. The bottom line here is that it can really pay off to gain an understanding of the best areas of the market to be in during a “risk-off” period. That’s why we’ve put together a brief overview of 3 stocks to buy in a “risk-off” market so that you can either protect your capital or profit as more investors move into conservative securities. Let’s take a deeper look below.
1. Coca-Cola
It’s easy to tell when investors start making moves that can protect their portfolios against risk when you see consumer staples stocks like Coca-Cola (NYSE:KO) rallying, which is exactly the case at the moment. The stock is up over 4% during the last week and could be a smart buy given how strong PepsiCo’s recent earnings were. It’s worth noting that PepsiCo (NASDAQ:PEP) saw a big rebound in revenue since people are heading out to restaurants, stadiums, and public places again, which bodes well for Coca-Cola’s Q2 earnings release next week.
There’s also a lot to like about this company’s defensive properties, as Coca-Cola produces products that see steady demand regardless of what is going on with the economy. The company distributes its products in over 200 different countries and owns iconic brands like Coca-Cola, Diet Coke, Sprite, Fanta, VitaminWater, PowerAde, and Minute Maid. Coca-Cola has undergone several important changes during the pandemic that should benefit the company in a big way going forward, including improving its digital capabilities. Finally, the fact that Coca-Cola is a dividend aristocrat with a 2.99% dividend yield makes it a clear winner amidst market volatility.
2. American Water Works
Another strong stock to consider buying in a “risk-off” market is American Water Works (NYSE:AWK). It’s a water and wastewater utility company that offers its services to residential, commercial, industrial, and other customers. What’s attractive about utility companies like American Water Works is that people need their services during all business cycle phases. With so many questions marks about inflation, the economic recovery, and market sentiment at this time, adding shares of the most geographically diverse publicly traded water and wastewater utility company in the U.S. makes a lot of sense.
This stock is also a nice pick at this time thanks to its history of dividend growth, as the company has rewarded long-term investors with a 10% dividend growth rate (CAGR) over the last 5 years. The stock currently offers a 1.48% dividend yield and is a solid choice for conservative income-oriented investors. Finally, the fact that commercial and industrial customers should generate more revenue for the company this year as they reopen following the pandemic makes this a utility stock poised for outperformance.
3. Invesco S&P 500 Low Volatility ETF
Another tell-tale sign that the market is in “risk-off” mode is the fact that the Invesco S&P 500® Low Volatility ETF (NYSE:SPLV) is breaking out to new all-time highs. It’s a great option for investors who want to put some money to work in more conservative areas of the market, but don't want to select individual stocks. This ETF consists of the 100 securities from the S&P 500 Index with the lowest realized volatility over the last 12 months, which means you can gain diversified exposure to the exact sectors of the market that are seeing strong inflows at this time.
Some of the ETF’s top holdings include reliable consumer staples like Colgate-Palmolive (NYSE:CL), PepsiCo (NASDAQ:PEP) and Procter & Gamble (NYSE:PG), health care giants like Johnson & Johnson (NYSE:JNJ), Bristol-Myers Squibb (NYSE:BMY), and Merck & Company (NYSE:MRK), and utility stocks like American Water Works, Duke Energy (NYSE:DUK), and Consolidated Edison (NYSE:ED). The ETF also offers a dividend yield of 1.62% at this time. Whether you are looking to profit from the short-term “risk-off” sentiment in the market or you simply want an ETF that can offer equity exposure without a lot of volatility, the Invesco S&P 500 Low Volatility ETF should absolutely be on your radar.