Let's face it: Few investors really like risk. Everyone would much prefer a sure thing than a not-so-sure thing. However, the potential for gaining rewards by investing inherently comes with risk. It's the trade-off investors have to make.
However, some stocks have lower levels of risk than others. Three great stocks that should appeal to low-risk investors right now are Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B), Brookfield Infrastructure Partners L.P. (NYSE:BIP), and Dollar General (NYSE:DG).
1. Berkshire Hathaway
Ask any savvy investor the best way to reduce risk, and the response will probably be to diversify. The benefit of diversification is that it spreads risk across multiple investments. If some investments lose, it's possible that others will win enough to make up for the poor performers.
Berkshire Hathaway ranks as one of the best stocks for investors seeking diversification. The company owns over 60 subsidiaries that span multiple industries, including consumer goods, insurance, jewelry, manufacturing, and railroads. In addition, Berkshire holds positions in around 40 stocks of other publicly traded companies. These stock holdings also offer plenty of diversification, representing a variety of industries.
Risk-averse investors should find Berkshire's latest quarterly results comforting. The company doubled its operating profit from the prior-year period. Two of its four largest operating businesses posted healthy pre-tax profit growth. The other two didn't, but the winners more than offset the losers. That's diversification working exactly as you'd want it to.
At the end of the third quarter, Berkshire had $103.6 billion in cash, cash equivalents, and short-term investments. That's a lot of dry powder for Warren Buffett and his associates to scoop up shares of more stocks when valuations are attractive -- giving Berkshire even more diversification.
2. Brookfield Infrastructure Partners
Brookfield Infrastructure Partners is another stock that provides some diversification for investors. The company is one of the largest owners and operators of global infrastructure networks in the world.
What does "global infrastructure networks" mean? Brookfield's infrastructure businesses include data centers, electricity transmission lines, gas pipelines, ports, railroads, toll roads, and utilities. The company's operations span every continent on the planet except Antarctica, giving Brookfield plenty of geographical diversification.
One great thing about Brookfield Infrastructure Partners' businesses is that they provide steady recurring revenue. Roughly 95% of the company's adjusted EBITDA comes from regulated or contracted revenue. The biggest jolt to Brookfield's revenue typically stems from a divestiture, as seen in the company's Q3 results, with funds from operations falling because of its sale of a Chilean electricity transmission business.
On the other hand, acquisitions help fuel growth for Brookfield. The company recently announced that it's investing up to $1.8 billion in six new businesses, including a Colombian gas pipeline, a U.S. data center, and a leading South American data center.
3. Dollar General
Dollar General doesn't offer diversification to investors the way Berkshire Hathaway and Brookfield Infrastructure Partners do. However, the discount retailer should be able to give stability during both good and bad economic times.
While consumers usually cut back on spending during economic downturns, Dollar General sells the kinds of staples and other goods that are in demand regardless of what happens with the economy. The company's competitive prices and convenient locations give it an advantage in weathering tough times.
But Dollar General does really well during positive times also. The stock has doubled over the past five years, with strong revenue and earnings growth during the period. Consistent growth is probably one of the best ways for a company to reduce risk for investors.
Dollar General should be in great position to keep its growth momentum going. The retailer added around 1,000 stores in 2017 and should add roughly the same amount in 2018. CEO Todd Vasos said in Dollar General's Q3 conference call that the new stores don't significantly cannibalize existing store sales and have a payback period of two years or less. The company has around 13,000 sites identified for adding more new stores.
Low risk isn't no risk
All three of these stocks have some level of risk, though. Warren Buffett could step down from Berkshire Hathaway. Brookfield Infrastructure Partners could make an investment that doesn't pay off as expected. Dollar General could see higher levels of cannibalization of existing stores as its grows. And there are more risks that could pull any of these stocks down.
As mentioned, investing inherently comes with some risk. But if you're looking for low-risk stocks to buy, Berkshire Hathaway, Brookfield Infrastructure Partners, and Dollar General should be great places to start.