3 Safe Bets for Conservative Investors

The only certainties in life are death and taxes...and to a lesser extent, marriages. That suggests that businesses serving such needs will experience stable demand for their products and services, making them perfect investment candidates for conservative investors.

Mar 7, 2014 at 2:52PM

Source: Service Corporation

In today's rapidly changing world, there's no guarantee that your next investment won't end up with the same fate as the seller of buggy whips decades ago. As a result, it is much safer for conservative investors to place their bets with the certainties in life, including death, taxes, and even marriage.

Examples of such stocks include death-care company Service Corporation International (NYSE:SCI) , tax-preparation services provider H&R Block (NYSE:HRB), and wedding planning information-services provider XO Group (NYSE:XOXO).

Till death do us part
While advancements in technology have disrupted many industries, such as book publishing and music, death-care providers are thankful that humans aren't immortal yet. The number of deaths in the U.S. has increased by a compound annual growth rate of approximately 0.8% from 1.4 million in 1935 to 2.5 million in 2010. While the growth rate isn't anything to shout about, the stability in year-over-year changes in deaths is remarkable.

Between 2000 and 2010, the number of deaths hasn't fallen by more than 3% in any single year. If you compare this with the drop in sales volumes for any industry or business during the global financial crisis, it becomes clearer why death-care stocks have certain investors interested.  

The best stock to capitalize on the stable demand for deaths is Service Corporation, the largest provider of funeral, cemetery, and cremation services in the U.S. Service Corporation is the outright market leader, with an estimated 13% market share of the death-care industry; its nearest competitor StoneMor Partners has less than one-tenth of its revenue. 

If an investor needs further assurance of the defensiveness of Service Corporation as an investment, he or she needn't look further than Service Corporation's strong revenue backlog and consistent free cash flow generation. Service Corporation's revenue backlog of $7.6 billion as of December is approximately three times its annual revenue. In addition, Service Corporation consistently generated positive free cash averaging about $273 million from 2009 to 2012.

Block Branded Android App Logo
Source: H&R Block

Paying Uncle Sam
If there is any pain greater than paying tax, it's the act of filing it. Compared with the opportunity cost associated with spending time on filing tax returns (versus running the business) and the potential penalties with erroneous tax returns, the cost of hiring a tax-preparation services provider is small.

Industry statistics speak for themselves. Tax filings have increased steadily at 1%-2% per year from less than 60 million in the 1950s to more than 140 million currently. Furthermore, about 60% of Americans rely on service providers to help them file their taxes, and this ratio has remained stable for the past decade.

The best proxy for the tax-filing market is H&R Block, the largest tax preparer globally with close to six decades of experience under its belt. It is estimated that one in six U.S tax filings is handled by H&R Block, and H&R Block has seven times the volumes of another tax-preparation service provider, JTH Holding. H&R Block also has an unrivaled presence, with 10,000 locations countrywide. In addition, in a relationship business like tax filing, its long-tenured tax professionals averaging about eight years of experience give it another edge.

The Affordable Care Act will be another boost to H&R Block given that any household using an Advance Tax Credit must file a 2014 tax return in 2015. JTH estimates that there will be between 1.5 million to 2 million new tax filers with the Affordable Tax Act.

Source: XO Group

Wedding bells ring
While weddings aren't as certain as death and taxes, about 2 million couples tie the knot every year. About $70 billion is spent on weddings every year, with half of this amount devoted to jewelry, gifts, and honeymoons. Recent trends have been positive.

Since the global financial crisis in 2008, 2012 marks the first time that wedding budgets have grown for two consecutive years in a row. At $28,527, the 2012 wedding budget is the highest it's been in five years. Also, more brides are becoming less price-sensitive; only 26% of brides claimed that their wedding budget was affected by the economy compared with a ratio of 34% in 2009.  

XO Group is a media company focused on weddings. Its bridal brand The Knot is one of the dominant players in the space, with more than 200,000 Facebook followers. More importantly, if brides are willingly to pay so much to make their weddings perfect, the demand for free or low-cost offerings is even greater.

Close to 60% of its revenue comes from the fees that companies pay to place their advertisements on its websites, which offer brides reviews of wedding vendors, advice, and other informative articles. XO Group also derived 19% and 17% of its 2012 revenue from publications and e-commerce, respectively. Most brides benefit from either free information provided by XO Group's websites or low- cost options such as magazines. In addition, XO Group leverages its brand for cross-selling opportunities for its e-commerce business.

The financial numbers are the best evidence of XO Group's resilience. It increased its revenue in every single year for the past decade, notwithstanding the global financial crisis in 2008 and 2009.

Foolish final thoughts
Although all three stocks don't offer skyrocketing growth prospects, they give their shareholders peace of mind knowing that they will be in business for the foreseeable future.

What's the Fool's favorite stock?
Every investor's definition of a good stock is different. I like stocks benefiting from stable demand and that are less likely to be disrupted by advancements in technology or changing consumer preferences. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Mark Lin has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers