- Investors will move to safe stocks en masse in July as woes increase.
- Campbell Soup (CPB): Strong performance and value make Campbell Soup a great hedge.
- Brown-Forman (BF-B): Catalysts are conspiring to make alcoholic beverage makers a winner.
- Johnson & Johnson (JNJ): Steady fundamentals and steady growth underpin JNJ’s safety.
- Dollar General (DG): This is one of few retailers raising guidance in this environment.
- Goldman Sachs (GS): A slant toward the wealthy during hard times favors this bank.
- Ulta Beauty (ULTA): Supply and demand-side strength underpin ULTA stock.
- Louis Vuitton (LVMUY): Luxury goods might seem an unlikely choice now, but they’re not.
There’s no doubt that investors are quickly shifting for anything safe these days. We can characterize that fear in many ways, but broadly speaking, a strong barometer is the Fear and Greed Index. Its current reading is “extreme fear,” the lowest reading there is. And that should directly correlate to the market assuming a more defensive stance. That means that certain stocks are likely to see increasing investment as portfolios shift in a risk-off period.
And in July this trend is only going to increase as we enter new territory and inflation notches upward as consumption spikes with the 4th of July holiday. That potential spike is just one of many factors affecting the economic outlook. In short, the attractiveness of safe stocks will only rise in July.
Let’s take a look at these seven safe stocks to buy in July:
|Campbell Soup Company
|Johnson & Johnson
|Dollar General Corporation
|The Goldman Sachs Group, Inc.
|Ulta Beauty, Inc.
Safe Stocks to Buy: Campbell Soup (CPB)
It’s fairly easy to see why a brand like Campbell Soup (NYSE:CPB) makes sense as a stock to buy in these times. Its brands, especially soups, are synonymous with value. And the company is proving that it can operate well in an inflationary environment marked by significant supply chain constraints.
Management was keen to note that it is finding ways to mitigate margin pressure, which is reflected in net sales that increased 7% and continuing operational earnings per share (EPS), which increased 15%.
2022 has already proven to be a very difficult market. It is highly likely that things will get worse before they get better. However, CPB stock has bucked the trend of everything moving downward. In fact, it’s up a few percent on the year. Don’t expect it to rise significantly. Rather, expect it to continue to act as a hedge against the massive inflation we’re enduring and appreciate it for the 3.15% dividend it comes with.
Alcoholic beverage producer Brown-Forman (NYSE:BF-B) hasn’t been spared in the downturn in 2022. In fact, year-to-date, it has declined from $71 to $67 at the time of writing. That isn’t particularly bad, especially when compared with broader markets that have dropped more than 20%. And there’s good reason to believe several factors will conspire in its favor in July.
For one, people like to drink alcohol on the 4th of July. Whether that’s one of its whiskey brands, including Jack Daniels, Woodford Reserve, or Finlandia vodka, you can safely assume sales will spike.
Secondly, consider that Americans have soured on the economy following the recent Federal Reserve rate hike. There’s another rate hike scheduled for July, which Chairman Jerome Powell is telegraphing to be as severe. What this means is that the closer we move to a recession, the more heavily favored spirit consumption becomes.
Safe Stocks to Buy: Johnson & Johnson (JNJ)
Johnson & Johnson (NYSE:JNJ) stock exudes safety not just for the brands it produces. It is a perennial choice for any investor considering how to mitigate risk within their portfolio. It doesn’t provide investors with much potential for outsized gains, instead providing slow, steady gains.
That is evidenced by the modest EPS beats it has had in each of the last four quarters. They aren’t huge, but they have been consistent.
Take a look at Johnson & Johnson’s price chart over the past three years to see why it is consistently characterized as safe. It only dropped with the onset of the Covid-19 pandemic, which proved to be absolutely unavoidable for all equities. However, it soon regained its steady trajectory and hasn’t budged since, even as the economy reels.
A cursory look at the projected fundamentals of the company throughout the next year indicates more steady revenue and earnings growth, which is exactly what will define safety in this market.
Dollar General (DG)
The same point I made above for Johnson & Johnson holds true for Dollar General (NYSE:DG) stock. It has provided consistent, modest EPS beats over the past four quarters.
That’s good news in and of itself. Further, at the same time earnings were released, Dollar General management announced that it was raising fiscal-year forecasts at a time when other retailers were getting crushed. That confidence sends a strong message to investors as DG stock remains flat for the year. In other times, remaining flat is often used to denote weakness. In this case, it doesn’t.
Equally importantly, investors should simply note that Wall Street was expecting Dollar General management to scale back guidance. So, when management told Wall Street it intends not only to meet sales growth of 9.3% this year but to hit 10% to 10.5%, investors should have perked up.
Dollar General isn’t ratcheting back guidance. That’s a testament to its pricing strategy. It’s logical to expect that July 4th will provide a boost to sales. Further, expect that as inflation continues to run rampant, sales will rise, as well.
Safe Stocks to Buy: Goldman Sachs (GS)
Recommending Goldman Sachs (NYSE:GS) is a clear departure from the consumer goods defensive stocks already listed in this article.
The reason is simple, however. UBS Group (NYSE:UBS) recently highlighted the clear opportunity in stocks exposed to the high-end consumer. The fact is that the wealthy are less likely to suffer if and when a recession kicks off.
For one, Goldman Sachs caters to a higher-end clientele than more commercially-minded banks, like Bank of America (NYSE:BAC). The point here is that Goldman Sachs is likely to see an uptick in business volume as its wealthier clients diversify their assets to take advantage of any recession.
And rising interest rates favor the bank as it can reasonably expect fees to rise as well as revenues as a result.
Ulta Beauty (ULTA)
Ulta Beauty (NYSE:ULTA) stock isn’t one that receives a lot of attention, but it should. The products this beauty retailer sells seem to be holding up well in the downturn. Additionally, its operations are clearly strong with a supply chain strategy that suggests it can continue to thrive.
The company’s most recent quarterly results were impressive. The company reported record sales of $2.3 billion. Equally important, its gross profit is rising in a time when many other retailers see their margins declining.
Those impressive results bolstered management confidence enough that it raised fiscal-year 2022 sales guidance from between $9.05 to $9.15 billion to between $9.35 to $9.55 billion.
Further, the company noted that merchandise inventories increased from $1.35 billion to $1.57 billion year-over-year by the end of the quarter. That suggests that the company shouldn’t have problems with supply-side constraints. Since demand appears strong, Ulta Beauty looks to be in an overall strong position.
Safe Stocks to Buy: Louis Vuitton (LVMUY)
Investing in Louis Vuitton (OTCMKTS:LVMUY) stock makes sense given the expansion of the global middle class. I’ve already mentioned that the elite aren’t going to be affected by any recession in the same ways that the rest of us will. If you believe in the notion that the elite will benefit while the rest suffer, LVMUY should pique your interest.
But it isn’t only the 1% who buy Louis Vuitton products, it’s also the expanding global middle class. They want to be seen in Christian Dior or Fendi while wearing Hublot and Bulgari watches and drinking Chandon, as well.
The point here is that July could well kick off a renewed round of recession fears. Rather than making luxury stocks less attractive, it makes them more attractive, according to UBS. Louis Vuitton is a strong company and it doesn’t seem worried about broader issues based on recently announced share buybacks.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.