Is the S&P 500 Due for a Major Pullback? 3 Ultra-Safe Stocks

The one big thing on everyone’s minds at the moment is Omicron and the way that it is spreading. For investors, it isn’t just the fear of getting infected or worse, hospitalized. It’s also a concern about what it could do to the market, if people rush back indoors. And of course, the things that will be hit first will be travel, airlines, hotels, restaurants and so on that we were all betting on as reopening stories.

For the most part, people are sticking with their holiday plans, and making the most of test kits, masks and other precautions to stay safe. But it is feared that right after the holiday season things could fall dramatically. And by then we could be in pretty bad shape considering that Omicron is much more contagious than Delta.

Of course, the Biden administration’s free test kits for at-home testing will come in handy. The government has said that it will buy 500 million test kits and deliver them free of cost to people who want them starting January.

It’s extremely unlikely that the catastrophic situation that we had when the virus first hit will repeat this time because 200 million people are already vaccinated, we have better therapeutics and people in general know what to do to stay safe. A lot of infrastructure is also in place to allow people to operate remotely. But the risks can’t be ignored.

And they are in addition to other concerns about inflation, supply chains, product shortages and labor issues that we were already in the midst of.

While the stock market has been one of the best places to put your money in this year, the stage seems set for a major pullback in the S&P 500. And that’s going to hurt a lot of people. So you may be wondering what to do to tide over the situation.

One tried and tested strategy for times like this, sometimes overlooked because it’s so easy, is to select stocks with a low beta. A low beta stock refers to a stock with a beta value less than 1. Stocks that have historically performed in line with the S&P 500 (usually the S&P 500, but may also be with respect to the Dow Jones Industrial Average or Nasdaq 100) will have a beta value of 1. Stocks that don’t move as much as the index have a beta value less than 1 and stocks that move more than the index have a beta value that’s greater than 1.

So basically, beta is a volatility measure with respect to some index, usually the S&P 500. When there are significant uncertainties in the market, it makes sense to pick low-beta stocks because they will not be as volatile.

And if it also pays a dividend and has a relatively sound growth profile, it makes all the more sense to invest in.

At Zacks, we also have a system of ranking stocks in our universe on the basis of their near-term performance (over the next month). So a stock with strong upside potential would have a Zacks Rank #1 (Strong Buy), if the chances are slightly lower, it would have a Zacks Rank #2 (Buy), then #3 for Hold, #4 for Sell and #5 for Strong Sell.

These three stocks combine the above factors, so they may be considered ultra-safe-

Broadcom (NASDAQ:AVGO) Inc. AVGO

Broadcom is a premier designer, developer and global supplier of a broad range of semiconductor devices with a focus on complex digital and mixed signal complementary metal oxide semiconductor (CMOS)-based devices and analog III-V based products.

Headquartered in San Jose, CA, Broadcom’s semiconductor solutions are used in end products such as enterprise and data center networking, home connectivity, set-top boxes, broadband access, telecommunication equipment, smartphones and base stations, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays.

In the last quarter, Broadcom’s results were more or less in line with estimates. The company is seeing ongoing strength in the 5G infrastructure and data center markets and the breadth and depth of its product offerings is helping sales. In the last 30 days, the Zacks Consensus Estimates for its 2022 (ending October) and 2023 earnings moved up. The estimate for 2022 increased $2.02 (6.5%) while the estimate for 2023 increased $2.82 (8.5%).

After growing a sedate 11.6% this fiscal year, Broadcom’s revenue is expected to grow 4.7% the following year. Its earnings are expected to grow 17.9% and 9.4%, respectively.

The company pays a dividend that yields 2.23%. And best of all, it has a beta value of 0.93.

Bank of Nova Scotia BNS

Bank of Nova Scotia is one of Canada’s leading banks offering retail banking and wealth management services primarily to customers in Canada, the U.S., Mexico, Peru, Chile, Colombia, the Caribbean and Central America. Bank of Nova Scotia is headquartered in Halifax, Canada.

In the last quarter, the company’s reported earnings came in 8.5% above the Zacks Consensus Estimate. And management expressed confidence in its diversified business model, which has demonstrated its resilience through the pandemic. They also believe that the bank is well positioned to achieve its full earnings power in the upcoming year. Bank of Nova Scotia’s estimates continue on an upward trajectory. And in the last 30 days, the estimate for 2022 (ending October) increased 43 cents (7.1%) while the estimate for 2023 increased 52 cents (8.1%).

Analysts currently expect its 2022 revenue and earnings to grow a respective 3.0% and 6.6% while the 2023 revenue and earnings to grow a respective 5.8% and 3.7%.

If that feels like very low growth, it’s worth remembering that Bank of Nova Scotia also pays a dividend that yields 4.2%. And the best part, for the purposes of this topic, is that the beta value for the stock is 0.94.

DENSO Corp. DNZOY (OTC:DNZOY)

DENSO develops, manufactures and sells automotive parts in Japan, rest of Asia, North America, Europe and elsewhere. It provides a very broad range of products from wind shield wipers to cooling and heating systems, powertrains and other automotive electronics. It is based in Kariya, Japan.

The company’s focus on advanced technologies has positioned it for success in a world that is moving toward an electric and self-driving future. As a result, it is able to sign lucrative deals with companies like Toyota and Honeywell (NASDAQ:HON).

In the last quarter, DENSO’s earnings missed the Zacks Consensus Estimate by 36.4%. However, its estimates for both 2022 (ending March) and 2023 moved up. The last 30 days saw the Zacks Consensus Estimate for 2022 increase 20 cents (10.5%) while the estimate for 2023 increased 30 cents (12.9%).

DENSO Corp’s revenue is currently expected to grow 8.1% in 2022 and 12.1% in 2023. Its earnings are expected to grow 177.6% and 24.2%, respectively, in the two years.

DENSO's dividend yields 1.22%. Its beta is 0.94.

3-Month Price Target (NYSE:TGT)

Image Source: Zacks Investment Research

Zacks Top 10 Stocks for 2022

In addition to the investment ideas discussed above, would you like to know about our 10 top picks for the entirety of 2022?

From inception in 2012 through November, the Zacks Top 10 Stocks gained an impressive +962.5% versus the S&P 500’s +329.4%. Now our Director of Research is combing through 4,000 companies covered by the Zacks Rank to handpick the best 10 tickers to buy and hold. Don’t miss your chance to get in on these stocks when they’re released on January 3.