Safe stocks are in demand thanks to global instability and the likelihood of rate hikes by the Federal Reserve. Nobody knows yet if a market crash is around the corner, but it makes sense to look ahead and find stocks that not only can survive the next crash but thrive despite it.
Think blue-chip stocks with a dividend that will reward investors even if the market remains volatile. On top of that, you want companies in sectors that are a little more recession-proof, such as healthcare and consumer staples, areas where it is difficult for most people to cut back.
That's why I like pharmaceutical giant Pfizer (PFE 1.19%) and food products maker McCormick & Company (MKC -0.29%).
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McCormick & Co.: The flavor of money
Even if you don't own stock in McCormick, chances are you've helped their bottom line by buying one of their products. The Maryland-based company sells spices, seasoning mixes, condiments, and other food products and is known for familiar brands such as Frank's Red Hot, French's, Old Bay, Lawry's, Zatarain's, and of course, McCormick's spices. The stock is up more than 12% over the past year though down more than 1% so far this year. Over the past 10 years, it has offered a total return of 352%.
Last year was a banner one for the consumer staples company, bringing in a record $6.3 billion in annual revenue, up 13% over 2021. Adjusted earnings per share (EPS) rose 8% to $3.05. In its fourth-quarter report, the company's annual guidance for 2022 predicted a 3% to 5% gain in revenue in 2022 with adjusted EPS between $3.17 and $3.22.
The reason why I like McCormick as a recession hedge is because people cook at home more when finances get tight, and that plays to McCormick's strengths. On top of that, the company is a Dividend Aristocrat that has increased its quarterly dividend for 36 consecutive years, including an 8% bump effective this year to $0.37 per share. This gave it a dividend yield of 1.46%, above that of the S&P 500's average yield of 1.27%.
The company's consistency is remarkable, boasting increased annual revenue for more than a decade and growing annual operating income for six consecutive years. McCormick should also see improve margins this year because of price increases. All in all, there's a lot to like.
Pfizer stock is a shot in the arm
The Pfizer name is also well-known to many consumers, especially since the onset of the pandemic and the development of a vaccine. Its stock, however, has been on a bit of a roller coaster -- down more than 20% so far this year but up more than 39% over the past 12 months. Over the past 10 years, the company has delivered a solid total return of 240%.
The healthcare company recently reported full-year results. Revenue totaled $81.3 billion, up 95% over 2021; adjusted, diluted EPS came in at $4.42 per share, up 96% from a year ago. Now, you might say that's due to success of the company's COVID-19 vaccine, Comirnaty (developed with BioNTech) as well as its COVID-19 antiviral pill, Paxlovid.
But even leaving out sales from its COVID-19 franchise, Pfizer's revenue would still have been $44.4 billion, up 6%. Realize, too, that Comirnaty and Paxlovid will still be money makers this year, and it's easier to understand why the company says it expects 2022 full-year revenue of $98 million to $102 billion and adjusted, diluted EPS of $6.35 to $6.55. That would represent improvements of 23% and 43%, respectively, at the midpoint over 2021.
Pfizer isn't a Dividend Aristocrat, but it has raised its payout for 11 consecutive years, including a recent bump of 2.6% to a quarterly $0.40 per share, giving it a yield of 3.35%.
All the money the company is making helps fund a pipeline that includes 52 therapies in phase 2 or phase 3 trials. One of the most promising drugs that could launch this year is Cibinqo (abrocitinib), which has done well head-to-head vs. Dupixent from Sanofi in treating atopic dermatitis.
To further increase its potential, the company also used the money last year for acquisitions, spending $6.7 million to buy Arena Pharmaceuticals, known for its inflammation therapies. This will complement Pfizer's JAK inhibitor, Xeljanz ($721 million in 2021 sales). Pfizer is also adding to its oncology platform ($3.2 billion in 2021 sales), currently led by Ibrance ($1.4 billion in 2021 sales) by buying Trillium Therapeutics for $2.3 billion.
Making the choice to recession-proof your portfolio
Of the two, McCormick has the more dependable dividend and a balanced enough business to survive recessions. However, if you're looking for a more rewarding yield and greater potential for growth despite a recession, Pfizer appears to be the better choice, particularly with a price-to-earnings (P/E) ratio of 12, compared to 34 for McCormick. Plus, there's a strong chance that the pandemic eventually will become endemic, which means the need for Pfizer's COVID-19 booster shot or its antiviral pill Paxlovid will continue well into the future.
