7 Stocks to Smooth Out Mr. Market's Wild Ride

Weak GDP numbers, lackluster manufacturing reports, high unemployment numbers, and a week straight of down days for the S&P 500 have many people wondering if stocks are worth owning. There is a way to put some shock absorbers on the market's wild ride and still own stocks: play defense.

Defensive stocks are typically established, dividend-paying companies with products that are always in demand. Think food, beverages, utilities, health care, etc. These stocks won't protect against a loss, but they tend to hold up better than the overall market in a downturn.

But which stocks? I ran the CAPS Screener to help find stocks that fit a defensive profile and are good candidates for further research. The criteria I set were:

  • Market capitalization greater than $10 billion (established companies)
  • CAPS rating of 4 or 5 stars (out of five)
  • Price-to-earnings less than 18 (earnings to cover a dividend)
  • LT debt-to-equity ratio less than 1.0 (manageable debt levels to deal with trouble)
  • Current dividend yield of 2%-5% (a reasonable dividend provides price support and income while a high dividend can be unsustainable or a sign of trouble)
  • Beta -- a measure of volatility relative to the market -- of less than 0.8.

The screen returned 33 stocks across a number of sectors, including the seven shown below.

Company

Debt-to-Equity Ratio

Dividend Yield

Beta
(3-year)

PE (TTM)

CAPS Rating (out of 5)

Sector

Chevron (NYSE: CVX  )

0.09

3.0%

0.73

9.2

****

Basic Materials

General Mills (NYSE: GIS  )

0.87

3.3%

0.19

13.7

****

Consumer Goods

Kimberly-Clark (NYSE: KMB  )

0.99

4.3%

0.39

15.4

*****

Consumer Goods

Chubb (NYSE: CB  )

0.26

2.5%

0.41

8.8

****

Financial

Abbott Laboratories (NYSE: ABT  )

0.51

3.8%

0.3

15.4

*****

Health Care

McDonald's (NYSE: MCD  )

0.73

2.8%

0.36

17.5

****

Services

Exelon (NYSE: EXC  )

0.86

4.7%

0.61

11.1

*****

Utilities

Source: Motley Fool CAPS stock screener. TTM = trailing 12 months.

These stocks represent a variety of sectors and business models, but all share strong balance sheets, good dividend yields, less-than-market volatility, reasonable valuations, and high ratings from our CAPS community.

A little defense is just the ticket for investors worried about the possibility of further market drops but who still want to be holding stocks.

You can follow any of the stocks mentioned using our free watchlist service, My Watchlist.

Fool contributor Russ Krull owns shares of Chevron and McDonald's but no other stock mentioned in this article. The Motley Fool owns shares of Abbott Laboratories. Motley Fool newsletter services have recommended buying shares of McDonald's, Chevron, Exelon, Kimberly-Clark, and Abbott Laboratories, as well as creating a covered strangle position in Exelon. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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