The continued rise in the stock market is widening the gap between value and growth investments. Technology, electric vehicles, special purpose acquisition companies (SPACs) and clean energy are just a few segments that have doubled or more. Dividend-income investors watching markets rise while their holdings move nowhere may only express disbelief. The rising market will only lure such investors to join the momentum trades higher. This all leads investors to wonder, what are some safe stocks to buy now?
Safe stocks earn their passive buy-and-hold status for a reason. Most of the time, they pay a dividend. So, the company will distribute its cash flow to investors instead of investing it back to the business. Investors get a steady income in exchange for safety and peace of mind. If these investments do not pay a dividend, they are still safe stocks to buy, provided the company’s balance sheet is not saddled with debt.
There are seven safe stocks to buy and hold onto forever. In alphabetical order:
- Apple (NASDAQ:AAPL)
- AbbVie (NYSE:ABBV)
- Amazon (NASDAQ:AMZN)
- Coca-Cola (NYSE:KO)
- Altria Group (NYSE:MO)
- PepsiCo (NASDAQ:PEP)
- Wells Fargo (NYSE:WFC)
Overall Stock Score and quality score on stocks to hold forever.
Left: Overall stock scores for the seven stocks. This score considers quality, sentiment, growth and value. Nearly every pick is “green” on quality, except Wells Fargo. A Fed cap lift would put an end to its low score.
Keep reading for a discussion on Wells Fargo stock.
Safe Stocks to Buy: Apple (AAPL)
Rumors that Apple would enter the electric vehicle (EV) market signal the market’s bullishness for the company’s reach. The smartphone giant is enjoying strong device sales and subscription growth. The impressive Q1 2021 results reaffirm Apple as a stock to buy and hold forever.
Apple posted first-quarter earnings showing earnings per share (EPS) growing by 35% to record levels. The company earned $1.68 a share as revenue rose by 21% year-over-year to $111.4 billion. The $38.8 billion in quarterly cash flow is enough to fund Apple’s EV ambitions. An EV partnership with a big auto brand like Nissan (OTCMKTS:NSANY) would hurt investors. So, investors should have expressed relief when talks ended after clashes over branding. Before that, AAPL discussed a partnership with Hyundai (OTCMKTS:HYMTF). That ended on Feb. 8.
Apple’s impressive iPhone sales will continue through the year. Supply constraints limited production of the iPhone Pro and Pro Max in the quarter. Expect product awareness to lift demand for those models. This will coincide with the company working through supply limitations.
AbbVie (ABBV)
AbbVie shares are stuck in a narrow trading range. While markets continue to ignore this drug manufacturer’s strong quarterly results, investors may collect a dividend that yields around 5%.
In the fourth-quarter and full-year report, AbbVie posted EPS of $2.72 for the fiscal year. Revenue grew by 37.7% to $45.8 billion. Results include revenue from the Allergan acquisition, which was completed last year. Adjusted for Allergan’s operations in the prior year, revenue grew by 9.4% year-over-year. AbbVie operates in many markets. Revenue from the immunology unit, led by sales of Humira, rose by 9.4% in the U.S. but fell internationally.
In the aesthetics division, expect a rebound in revenue as easing restrictions from the pandemic help lift results in 2021. Chief Executive Officer Richard Gonzalez said that the unit will regain its growth trajectory this year. It will grow in the high single-digit percentage over the next decade.
Amazon (AMZN)
The pandemic accelerated market-share growth for online retailers. Amazon posted exceptional fourth-quarter results and announced that Andy Jassy would become the new CEO.
The company posted operating-cash-flow growth of 72% to $66.1 billion. AWS, or Amazon Web Services, enjoyed significant customer momentum in the quarter. AWS’s customers need to migrate to the platform while new customers commit to it. Demand is so strong that Amazon’s AWS re:Invent attracted over 570,000 registered attendees. The more than 180 new services announced will further fuel demand and lift revenue.
AMZN shares are trading in a narrow range around $3,200. Once thought of as an expensive stock, momentum investors are ignoring the online giant’s prospects. Chasing high-flying SPACs that are pre-revenue will prove costly. Conversely, Amazon is a stock to buy and hold forever.
Coca-Cola (KO)
Besides increasing its dividend by a penny for shareholders, Coca-Cola’s underperformance is unusual. It earned 47 cents a share as revenue dropped 5.31% to $8.6 billion. Investors may excuse the lower sales because of the negative impact of the pandemic.
Coca-Cola has two approaches in strengthening sales. It will ensure seamless execution of its supply chain. And it will support customers. For example, the Sprite campaign and Fanta Global Initiatives will spur demand.
KO stock faces near-term headwinds from a U.S. tax dispute. But if the court upholds its decision, the company will owe around $12 billion in incremental tax liability. Resolving the dispute will take time. The uncertainties already hurt the share price. This will not distract management, as the team focuses on delivering growth and creating long-term value for shareholders.
A five-year DCF Growth Exit model uses the perpetuity growth formula (also known as Gordon Growth) to calculate terminal value after five years. At a 4% growth rate, KO stock is worth around $61, using this finbox calculator.
The stock has strong brand recognition. With revenue set to rebound, investors should consider holding this stock forever.
Altria Group (MO)
Investors look at tobacco stocks as a taboo investment. Yet Altria’s expansion into markets beyond cigarettes will pay off for the patient shareholder. The steady quarterly results also suggest limited downside risk as Altria pivots into e-cigarettes and cannabis.
In Q4 of 2020, Altria posted revenue growth of 5.27%, or $5.05 billion. EPS topped 99 cents. On its conference call, Chief Executive Officer Billy Gifford expressed confidence in its outlook for the year. He said that cigarette sales over the next decade are the core driver of the business. But in that 10-year timeframe, non-combustible products will add meaningfully to results. Altria will continue to invest in that market segment to support the non-combustible portfolio.
Investors may count on the proven management team to expand the business. While invested, MO stock will pay a dividend that yields near the 8% range.
PepsiCo (PEP)
Pepsi drifted lower in sympathy to the drop in Coca-Cola shares. Besides paying a dividend of around 3%, the 2020 Q4 results are solid.
Pepsi posted Q4 revenue growing by 8.8% year-over-year. EPS topped $1.47 in the quarter and $5.52 for the year. For 2021, PEP stock will pay a dividend that is 5% higher than last year. The beverage firm also sells food products across a wide market. For example, Frito-Lay is a snack brand, while Quaker Foods sells everything from breakfast oatmeal to snacks.
Quaker’s North American performance is notable. Operating profit grew 17%. The unit benefited from strong revenue growth and lower advertising and marketing spend. Though it took a Covid-19-related charge that hurt profit growth by 2%, such costs are unlikely this year.
Europe underperformed as profits fell. Since currency exchange rate costs are to blame, expect a stable U.S. dollar supporting results next quarter.
In a five-year DCF EBITDA Exit model, assume a discount rate of 8%. This would suggest a fair value of $129 for PEP stock.
Wells Fargo (WFC)
Wells Fargo barely pays a dividend. This did not stop WFC stock from rising in recent months. Bloomberg reported that the Fed may accept the bank’s overhaul plan. Easing asset caps will put an end to the bank’s underperformance.
Getting the Fed’s approval is a sign that the new management team is of better quality. An asset cap lift may not come until later this year. However, WFC stock will still have a good chance of outperforming the other banks. Markets are pricing expectations of improved net interest income. Plus, the asset cap easing will lift the price-to-book ratio as investors pay more for holding the stock. This suggests that Wells Fargo is a stock to hold forever.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.
