Please ensure Javascript is enabled for purposes of website accessibility

3 Low-Risk Stocks for Conservative Investors

By Alex Carchidi – Sep 17, 2021 at 6:49AM

Key Points

  • Profitably selling products that people can't do without is usually a safe business model.
  • There's more than one way to protect profit margins.
  • There's no such thing as a risk-free stock.

Motley Fool Issues Rare “All In” Buy Alert

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Not every investing strategy has to involve trying to beat the market.

If the idea that you might see a significant fraction of your portfolio's value vanish due to falling share prices is the sort of thing that can keep you up at night, you're not alone.

For some people, the key to peaceful sleep is as simple as keeping a highly diversified portfolio, which minimizes the risk that any single declining stock or sector can pose to your overall holdings. But for investors who are still sitting at the breakfast table with bloodshot eyes even after diversifying, a more conservative approach of picking lower-risk stocks may be warranted.

These three companies are long-standing, profitable, and generally successful competitors in their crowded industries. You probably shouldn't count on them to beat the market every year, but their businesses aren't going anywhere, even if the world changes dramatically.

Several medical professionals confer at a table while consulting several laptops and papers.

Image source: Getty Images.

1. Pfizer

Pfizer (PFE -0.16%) is a low-risk investment because it makes so many medications that millions of people worldwide need. 

Even before it made its multibillion-dollar coronavirus vaccine, it was one of the world's largest pharmaceutical companies. Its drug development pipeline is massive, and it's packed with programs at every stage of the clinical trial process; it has 23 programs in phase 3 trials alone. 

Right now, Pfizer is waiting on regulators to weigh in on its request to commercialize at least six wholly new medicines and two requests for expanded indications. Assuming they earn approvals, those programs will provide it with a considerable inflow of fresh revenue over the next few years.

Given that it conducts so much research, the company is no stranger to setbacks in the clinic -- but no single failure will be enough to put much of a dent in its share price. Further, its management is keen to protect shareholder returns, even when that means making major changes, such as its recent spin-off of its generic drug manufacturing division.

In sum, Pfizer has demonstrated a consistent ability to bring drugs from the laboratory to the clinic and eventually to the market. For a pharmaceutical stock, it doesn't get any better.

2. CVS Health

CVS Health (CVS 0.47%) is effectively one of the pillars of the U.S. healthcare system. Through its network of retail locations within reach of nearly 85% of the country's population, it sells everything from toothbrushes to groceries to prescription medications. And with a market cap of about $111 billion, it's among the larger companies in the world. 

Even if any given individual store proves unprofitable to operate, the public will always need consumer healthcare goods and pharmacy services, so the business model as a whole is highly robust. Likewise, while there are a few large competitors vying with it for market share, CVS is able to defend its customer base by offering loyalty programs and walk-in clinics, and by occupying valuable real estate in regions where it's scarce. 

Furthermore, the company doesn't need to worry much about new entrants into its markets. Few upstarts have the ability to maintain supply chains on a national scale, never mind the acumen to deal with insurers and healthcare professionals.

In sum, CVS is positioned to maintain its margins while deepening its service offerings to increase revenue over time, and it's hard to imagine a future where the company isn't relevant.

3. Becton, Dickinson

You may not be familiar with Becton, Dickinson (BDX 1.55%), but it's just as important to hospitals as CVS is to consumers. The company produces a vast array of equipment and disposable items for hospitals, ranging from gauze to cardiac stents to sophisticated diagnostic devices. It also supports the biotech and pharmaceutical industry's all-important research and development efforts with its catalog of research instruments and chemical reagents. 

In short, there are several lines of business that Becton, Dickinson and its investors can rely on through thick and thin. What's more, it doesn't need to do a huge amount of R&D of its own to keep selling to its customers.

After all, the gauze pad of today is fundamentally the same as the gauze pad from 20 or 30 years ago. Therefore, while some items in its catalog might not be the most lucrative products, their contributions to Becton, Dickinson's revenue base are fairly stable, and there isn't much incentive for its long-time customers to switch to a competitor's version.

And that's the strategy that makes Becton, Dickinson a market leader in many of its product segments. Thanks to the economies of scale it enjoys due to its global customer base, its competitors are unlikely to be able to offer substitutes for many of its products at lower costs or with superior features. So, you can bet on Becton, Dickinson being able to maintain its profit margins for quite some time -- a crucial attribute for a safe investment.

Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool recommends Becton, Dickinson and CVS Health. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Becton, Dickinson Stock Quote
Becton, Dickinson
$241.02 (1.55%) $3.68
Pfizer Stock Quote
$49.49 (-0.16%) $0.08
CVS Health Stock Quote
CVS Health
$100.88 (0.47%) $0.47

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.