3 Boring Safe Stocks Rule
With September seasonality kicking into high gear this week, where can an investor find safety? Bonds? Forget it. They pay next to nothing. Cash? Ditto. How about safe stocks with sound balance sheets, decent PE’s and sustained growth? We’re not talking about the exciting Teslas of the world, which soar but also swoon with uncommon volatility, but industrials REITs, IT consulting and dentistry names. Yes, teeth. Not sexy like EV’s, but a lot safer in times of volatility. Boring is good. Here are some picks to buy if markets tick down further in the weeks to come:
This is a REIT that includess distribution and fulfillment centres for big-name clients such as Amazon, FedEx and Home Depot. Prologis is riding the e-commerce boom that’s extending into the ongoing recovery. In fact, PLD is outperforming year-to-date all their above-mentioned clients, jumping 29% (as of Sept. 20) compared to Home Depot’s 24%, Amazon’s 2.6% and FedEx’s -3.8%. Prologis doesn’t suffer the bad headlines of supply chain constraints or anti-trust accusations like these companies. Instead, it operates in the background and delivers value for shareholders. Its PE of 62x may appear high, but it far lower than the industry norm of 109.9x. Further, its profit margin of 37.62% outpaces the industry’s 22.74%. However, PLD’s ROE of 4.81% lags the 13.67% of its collective peers as does its dividend yield of 1.94% vs. 2.74%. Also consider that this industrial REIT has beat its last four quarters with its most recent, Q2, coming in at $0.81 in terms of EPS vs. the street’s expected $0.44.
I admit PLD stock is on the low end of the dividend scale, paying almost 2%, but the reason is a good one: shares have run up sharply since the year began. Since its peak on September 3, PLD stock has retreated by $10 to around $128. Furthermore, PLD is resilient as witnessed during Monday’s sharp pullback when Prologis lost only 0.81% while the Nasdaq tanked 2.19%. In other words, investors weren’t running for the exits from this name, making it a safe stock. Nor are the 12 analysts who rate this a buy and two others a hold, targeting $144.43 or 11% upside.
Envista Holdings (NVST-Q)
Envista is in the teeth business, something that offers a permanent and unmovable client base around the globe. And yet, few have heard of this California company that makes dental liners and retainers for dentists in 120 countries. They should. Envista has handily beaten its last four quarters and outperformed the Nasdaq by 10 percentage points at 23% year-to-date. Aging teeth are a tailwind, and there’s room to expand in emerging markets which make up only 22% of company revenues currently. The company boasts a wide array of products for dentists, 30 brands in total, that cover 90% of their needs in diagnosing, treatment and preventing bad teeth.
Bullish fundamentals highlight a PE of 23.9x compared to the dental/medical industry’s 73.2x, a price-to-cash flow of 15.8x vs. 81.1x, and gross and profit margins that are in line or beat the competition. Bearish numbers include earnings that lag the sector, $1.74 EPS vs. $6.04 and a lack of a dividend. Overall, not a slam dunk, but pretty good. Of the analysts who cover NVST stock, three signal a buy and one a hold at a $52 price target that’s 22% higher than current share levels.
Envista peaked on May 7 and tumbled from $45.48 to below $40 on August 10, which seems to be resistance. Share then cruised back to $44 before Labour Day, but Monday’s sell-off knocked it back below $42. September is the time of pullbacks, so start picking away at NVST stock at $40.
Accenture Ltd. (ACN-N)
Accenture offers IT consulting in industries that will not go out of fashion, such as government and healthcare. They help close to three-quarters of the Fortune 500 transition to and operate on cloud computing. Again, cloud is not falling out fashion anytime soon, but booming as witnessed by the meteoric rise of Microsoft. Of course, Covid spelled a boom time for Accenture and the recovery so far has proven that there remains strong demand for cloud computing. ACN boasts a solid balance sheet and organic growth that supplements tuck-in acquisitions. Its beaten its last four quarters. Accenture buys back shares and raises its dividend, though it pays only 1.05%. Blame the share run-up this year of 26.5%, which is exactly double the Nasdaq’s performance.
ACN stock’s PE stands at 37.1x which beats the industry’s 45.4x, but the street offers a lower forward PE of 34.53x, citing moderate growth expectations. Accenture’s price-to-cash flow and profit margin also beat its peers, and the company boasts one of the highest ROE’s within the computer services industry at 32.69%. The 1.06% dividend yield is in line with peers at a safe payout ratio of 37.81%. As of Sept. 20, ACN is down 4.5% from its Sept. 15 high, so if the market keeps correcting, that will be the time to step into this safe stock.