Last week ended with the concerning news that President Donald Trump had tested positive for COVID-19. This week began with the grim news that the U.S. had hit its highest daily coronavirus infection rate in two months.
As case numbers across the country continue to rise, investors are smart to be concerned. For those who are worried about how a second coronavirus sell-off might impact their savings, we asked three of our Motley Fool contributors which safe stocks they'd recommend. They came back with Hormel Foods (HRL 1.27%), Brookfield Infrastructure (BIP -0.38%) (BIPC -0.35%), and Ormat Technologies (ORA -0.48%). Here's why.
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A conservatively run food company
Lee Samaha (Hormel Foods): This food company is definitely not your average publicly listed corporation. In fact, it appears to be run more like a private company. The Hormel Foundation -- a nonprofit organization set up by Hormel Foods founder George Hormel and his son -- owns 48% of the stock, with institutional shareholders holding 43%. The aims of the foundation are to preserve the company's independence, support the local community, and provide for the welfare of the heirs.
That means the consumer-staples company tends to be conservatively run, with very little debt. And it has a progressive dividend policy: Hormel is a Dividend Aristocrat, having raised its dividend for 54 consecutive years. However, the "safe stock" aspect to its attractiveness doesn't stop at the way the company is run, because Hormel's end markets are relatively stable too.
Slightly over half of its sales go to the U.S. retail market, with 31% to the U.S. food-service market, 10% to U.S. delis, and 7% to the international market. It's a good mix and has given the company resiliency during the COVID-19 crisis. For example, in Hormel's fiscal third quarter, strong growth in retail sales more than offset declines in its food-service sales (as restaurants were forced to close because of COVID-19), leading to 2.2% organic sales growth.
Thinking longer-term, Hormel is hoping its food-service sales will improve as the economy opens up again. In addition, management has made significant acquisitions and capital investments in recent years in order to boost growth. Meanwhile, the long-term case for the stock as a play on demand for protein remains: Pork products (including SPAM, Hormel brand, and Black Label) contribute 50%-55% of sales; turkey (Jennie-O) 18%-22%; non-meat (Skippy) 16%-18%; beef 8%-10%; and chicken and other products 2%-4%.
All told, Hormel is a useful stock for risk-averse investors looking for a dividend yield of nearly 2%.
Infrastructure: The gift that keeps on giving
John Bromels (Brookfield Infrastructure): Generally speaking, the more essential a business is, the "safer" its stock is likely to be. Hormel, above, was a good example: Regardless of what the stock market or the economy are doing, people have to eat. People also have to heat their homes in the winter, keep the lights on, and -- especially during a quarantine -- stay connected with the outside world. And Brookfield Infrastructure helps people around the globe do just that.
Brookfield Infrastructure is part of the Brookfield Asset Management (BN 0.31%) family, and focuses on four areas: utilities, energy, data infrastructure, and transportation. It's no surprise that the first three of those four areas have not only managed to perform well during the pandemic, they have actually outperformed. The funds from operations (FFO) generated by those three businesses in the first half of 2020 were 8.3% higher than in the first half of 2019.
As you can probably guess, the company's transportation segment -- which owns toll roads, ports, and rail lines -- didn't do so well, as global travel ground to a halt during the height of the pandemic. Management expects this side of the business to recover in 2021. Investors can hop along for the ride by buying the company's shares of stock, with the ticker symbol BIPC, or units of its master limited partnership (MLP), with the BIP ticker. Either one will not only add some safety to your portfolio, but also provide a healthy yield of about 4.9%.
Sleep soundly with this low-risk energy stock
Scott Levine (Ormat Technologies): As global coronavirus cases rise dramatically and leaders implement lockdowns to curb the spread of the pandemic, it's unsurprising that investors are having flashbacks to the volatility which rocked the market last spring. Likewise, the interest in conservative stocks is equally understandable, as investors look to fortify their portfolios against future market turmoil.
For those who find themselves in this situation -- on the lookout for safer stocks -- Ormat Technologies is a name that's well worth considering. A leading global provider of geothermal solutions, Ormat has clear foresight into its future finances, as it often signs long-term power purchase agreements with customers.
In addition to geothermal energy, Ormat is also committed to expanding into the energy-storage market. Last April, for example, Ormat commenced operation of a 10-megawatt (MW) storage facility, Rabbit Hill, in Texas. More recently, in July, Ormat announced the acquisition of its first battery-energy storage facility, Pomona, in California.
While the company's past performance doesn't guarantee future performance, it's worth noting that over the past five years Ormat has provided investors with a total return of 97%, outpacing the 72% gain in the S&P 500.
In terms of its financials, Ormat has succeeded in steadily growing revenue over the past five years -- a period during which it has also increased EBITDA (earnings before interest, taxes, depreciation, and amortization) and operational cash flow:
ORA Revenue (Annual) data by YCharts.
Like many businesses, Ormat expects the impact of COVID-19 to adversely affect its top line this year. While its 2020 revenue forecast of approximately $718 million (which would be a year-over-year decline of about 4%) may give some investors pause, it's hardly an indication that the company is in peril. In fact, on Ormat's recent Q2 2020 earnings conference call, CEO Doron Blachar stated that the company is "on track to meet [its] 2022 megawatt growth goals" and it's "laying the foundation to enable us to continue our growth path in 2023 and beyond."
Besides its steady revenue and cash-flow generation, the company's circumspect approach to the dividend should appeal to cautious investors. While the modest forward dividend yield of 0.64% may not be much to write home about, the stock's average annual payout ratio over the past five years -- 19.3% -- suggests that management isn't willing to jeopardize the company's financial health in order to attract dividend investors.
