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3 Great Stocks for Low-Risk Investors

By Neha Chamaria - Updated May 11, 2020 at 3:05PM

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If you fear a recession and are a risk-averse investor, these stocks won't let you down.

With fears of a recession looming larger than ever, it's time investors add some low-risk stocks to their portfolio. Investing in stocks by itself is risky, but stocks can also make you filthy rich if you can cherry-pick the right ones and own them for long periods of time.

When it comes to risk, stocks in defensive sectors, with strong competitive advantages, financial fortitude, and a commitment to shareholders, stand a better chance to survive a downturn. Here are three such incredible low-risk stocks for you to consider now.

How to mint money from water

Water is a necessity, and that's exactly what makes American States Water (AWR -0.20%) a no-brainer low-risk stock. But make no mistake: American States Water isn't any other water company but has a compelling competitive edge: its contracted services subsidiary, American States Utility Services, which supplies and treats water at privatized military bases throughout the country. The best part is that these government contracts have a life of 50 years.

A risk dial pointing at low risk.

Image source: Getty Images.

So while American States Water's base water utility business -- and a smaller electric utility that it runs -- generates steady cash flows, its military service business is the company's growth engine. In 2019, approval for a water rate increase in California helped drive the company's water segment earnings per share (EPS) higher by nearly 35%. Contracted services, meanwhile, earned 12% higher EPS in the year.

American States Water's dividend streak further reflects the resiliency of its business: The stock is a top-class Dividend King, having increased its dividend every year for the last 65 consecutive years. That dividend growth has added greatly to the stock's total returns in recent decades and more than makes up for its small dividend yield of 1.6%.

A healthcare giant that's built to last

Like American States Water, Johnson & Johnson (JNJ 0.89%) has an incredible dividend streak to show off as proof of its business resiliency and survival through recessions -- a key factor when considering stocks to mitigate risk in your portfolio.

In April, J&J increased its annual dividend for the 58th consecutive year while delivering strong numbers for its first quarter. In fact, while many companies have withdrawn guidance for 2020 in the wake of COVID-19 pandemic uncertainty, J&J gave investors a low yet definite guidance, again reflecting its confidence and resiliency during challenging times. Its consumer health and pharmaceutical segment sales grew 11% and 10%, respectively, during the quarter, with only medical devices witnessing a drop of 5% in sales as medical procedures were deferred because of the coronavirus outbreak.

JNJ Total Long Term Debt (Annual) Chart

JNJ Total Long Term Debt (Annual) data by YCharts

To be fair, healthcare stocks can be risky if they run into regulatory and legal hurdles: J&J's baby powder, for example, has been in the news for the wrong reasons for years. But at least three things can help J&J ride out any storm: a diversified portfolio, global footprint, and balance sheet fortitude. Management's commitment to grow dividends further adds to Johnson & Johnson's appeal as a relatively low-risk stock to buy and hold.

War on cash is the future of tomorrow

A company that facilitates e-commerce and digital transactions shouldn't let you down for years, even decades, to come. Visa (V 0.33%) is a world-renowned brand, with nearly $3.5 billion co-branded credit and debit cards in circulation around the world.

As one of the world's largest payments processing company, Visa enjoys the power of "network effect," which simply means how each additional user of Visa's products and services adds value to other users (banks and financial institutions that issue Visa cards, merchants that accept payments through Visa cards, and customers that use them) and its business. Visa earns a cut on every transaction made using its card anywhere in the world over and above a fee on its total global transaction volumes during a period.

It's an asset-light, high-margin business with incredible potential as more and more merchants are going online and people around the world are ditching cash for digital and contactless payments. Visa's operating margin, for instance, has consistently trended above 50% in the past decade. With a solid balance sheet to boot and a laser focus on expanding into futuristic fintech technologies, Visa is a stock you wouldn't regret owning.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Visa. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Johnson & Johnson Stock Quote
Johnson & Johnson
JNJ
$167.57 (0.89%) $1.48
Visa Inc. Stock Quote
Visa Inc.
V
$217.14 (0.33%) $0.72
American States Water Company Stock Quote
American States Water Company
AWR
$89.66 (-0.20%) $0.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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