The S&P 500 is down 10% in 2020 and the markets have been showing a lot of volatility, especially since the World Health Organization declared COVID-19 a pandemic in March. However, not all industries and not all types of stocks have been hit equally. There are some industries facing much more risk today than others. And if you're not sure where to invest right now, a safe choice might be in healthcare.
Why healthcare's the safest option for your money today
Healthcare is on everyone's minds these days as concerns surrounding COVID-19 are front and center on every newscast. Not only are people with COVID-19 suffering, but patients with other diseases and illnesses are also struggling as hospitals have pushed many of them down the priority list in an effort to free up resources. Even when there's not a pandemic to heighten people's needs for healthcare products and services, those things are still essential, and demand for them is a lot more consistent than other industries may experience.
As risky as Johnson & Johnson (JNJ 0.67%) may appear to be as an investment -- the company is facing lawsuits relating to opioids, talc baby powder, and other products -- it's still going strong, with sales up 3.3% in first-quarter 2020 over the prior year and net earnings reaching $5.8 billion, an increase of 55%. Lower expenses propelled the company's profit margin from 18.7% a year ago to 28% in Q1.
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But strong numbers are just what investors have come to expect from the stock over the years. In fiscal 2019, the company netted $15.1 billion in profit on sales of $82.1 billion. In 2018, the numbers were similar, with earnings of $15.3 billion on $81.6 billion in revenue. In both years, Johnson & Johnson's profit margin was comfortably over 18%. And while the company is expecting some challenges this year, it's still projecting a profit. Management lowered their guidance for earnings per share (EPS) this year due to the coronavirus, bringing their estimates from a range of $8.95 to $9.10 to between $7.50 and $7.90. Many companies in other industries would be happy to record any sort of profits at all.
Shares of Johnson & Johnson are up a modest 2% so far this year. You would have earned more investing in Amazon (AMZN -1.14%), which is up 29% over the same time. But tech stocks are more volatile than healthcare stocks, and the e-commerce giant is trading at more than 100 times its earnings over the past 12 months -- not to mention recently falling short of expectations in its most recent earnings report. Investing in Amazon may not be the slam dunk it was in the past. Tech stocks often trade at high valuations, and that can be risky heading into a recession, when many investors may start to prioritize value and stability over long-term growth.
Unlike many tech stocks, Johnson & Johnson also pays a dividend; its yield of 2.7% is higher than the 2% payout of the average S&P 500 stock. Not only does such a dividend add recurring cash flow for your portfolio, it can be a way to help boost those overall returns.
Other industries possess significant risk
It's not hard to find a lot of risk in the market these days -- just look airlines or oil and gas stocks:
Johnson & Johnson's single-digit returns look incredible compared with the losses that Boeing (BA 0.01%) and ExxonMobil (XOM -0.09%) have incurred this year. Boeing has been hit by a huge reduction in demand for air travel as a result of the coronavirus pandemic -- first-quarter results released April 29 showed a loss of $641 million for the period. Investors were already down on the stock because of its grounded 737 Max planes, and now with demand for air travel next to nonexistent, there's little reason to be bullish on airlines. Boeing CEO Dave Calhoun isn't sugarcoating things, either, saying he expects that it may take up to three years for demand to recover.
ExxonMobil is dealing with a related issue: low oil prices. If people aren't traveling, demand for oil is softened. And because there was already an oversupply of oil in the markets, this low demand has sent prices crashing; the price of a barrel even fell below $0 at one point in April. On May 1, ExxonMobil reported a $610 million loss as it recorded writedowns due to low oil prices.
The challenge for Exxon and other oil and gas companies is that unless the price of oil recovers, which at this point appears unlikely to happen anytime soon, even tougher news may be in store for investors this year and in 2021.
Hide your cash in healthcare, at least for now
In 2020, earning a good double-digit return may be a pipe dream. Simply avoiding losses may be an achievement this year. And a good place to earn a modest return along with a great dividend is in healthcare. Johnson & Johnson is a Dividend Aristocrat, and the company increased its dividend payments in April for the 58th straight year, hiking the payout by 6.3%.
ExxonMobil had been upping its dividend, too -- notching increases for more than 10 years in a row -- but that streak came to an end last month. The company had to freeze its dividend due to the challenges it's facing, and investors shouldn't rule out the complete elimination or suspension of the payouts, especially if oil prices remain low and conditions in the industry do not improve. However, that's still better than Boeing, which announced in March that it will suspend its payouts. The company doesn't expect to pay dividends again for years.
Healthcare stocks offer investors more consistency than stocks in other industries, and many of them also pay dividends as well. That's why investors who are looking for a safe place to invest right now may find healthcare their best option.
