The past couple of years have been consistently unpredictable for Wall Street. The three major stock indexes -- the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite -- have vacillated between bear and bull markets since the decade began.
While 2023 has been a relatively promising year, with the benchmark S&P 500 and growth-driven Nasdaq Composite higher by 12% and 26%, respectively, through the closing bell on Sept. 28, 2023, these indexes remain well below their all-time highs, which were set between mid-November 2021 and January 2022.
With a myriad of economic datapoints and predictive indicators suggesting a possible U.S. recession is in the offing, playing it "safe" might be a smart move for investors during the final three months of the year.
What follows are five genius safe stocks -- i.e., companies with a rich history of profits and the ability to outperform in any economic climate -- you can confidently buy for the fourth quarter of 2023.
Image source: Getty Images.
AT&T
The first safe stock that makes for a surefire buy for the final three months of 2023 is telecom stock AT&T (T +0.68%). Despite being pressured by higher interest rates (the company ended June with $143.3 billion in total debt) and concerns over its use of lead-clad cables in its network, the puzzle pieces are in place for AT&T to shine in a challenging environment.
One reason investors can trust AT&T is that its balance sheet has meaningfully improved since spinning off WarnerMedia in April 2022. When WarnerMedia and Discovery merged to create Warner Bros. Discovery, the latter assumed various debt lots and made a cash payment to AT&T. The combined value of this debt assumption and cash payment totaled $40.4 billion. Since March 31, 2022, AT&T's net debt has plunged $37 billion to $132 billion. This means its juicy 7.4% dividend yield is safe and sustainable.
The argument can also be made that AT&T's lead-sheathed cable concerns are a nonstarter. The company has noted that these legacy cables make up a small percentage of its network. What's more, if the company has any financial liability tied to the removal of these cables, it would likely be determined in the U.S. court system. That's going to take years, and AT&T would, more than likely, be in even better financial shape by then.
Most importantly, AT&T's core operations are humming along. Data consumption for wireless users should climb due to expanding access to 5G download speeds. Meanwhile, AT&T is working on a five-year streak of adding at least 1 million net broadband subscribers.
The 5G revolution is modestly moving the needle for AT&T, which makes its forward price-to-earnings (P/E) ratio of 6 look like a genuine bargain.
NASDAQ: JAZZ
Key Data Points
Jazz Pharmaceuticals
Non-brand-name businesses can be safe stocks, too. Although biotech company Jazz Pharmaceuticals (JAZZ 2.75%) isn't a household name, it possesses the traits of a company that can safely deliver steady gains for its shareholders.
On a macro basis, Jazz benefits from healthcare stocks being highly defensive. Regardless of how well or poorly the U.S. economy performs, the people who rely on Jazz's brand-name drugs will continue to need them in the future. This leads to predictable operating cash flow for Jazz Pharmaceuticals in any climate.
To add, Jazz almost exclusively targets orphan diseases -- rare diseases that affect fewer than 200,000 people globally. While focusing on therapeutics for a small pool of patients has its risks, there are also big-time rewards. Approved drugs face little or no competition, and insurance companies rarely, if ever, push back on exorbitant list prices.
On an operating basis, Jazz is firing on all cylinders. The company's oxybate franchise, which consists of sleep-disorder drugs Xywav and Xyrem, may combine for $1.9 billion in full-year sales. Meanwhile, Jazz anticipates its oncology portfolio will hit $1 billion in annual sales this year.
With phenomenal pricing power in its sails, Jazz offers an exceptionally safe floor at a forward P/E ratio of less than 7.
Image source: Getty Images.
Enterprise Products Partners
A third genius safe stock that would make for a no-brainer buy for the fourth quarter of 2023 is energy stock Enterprise Products Partners (EPD 1.64%). Although some investors might be apprehensive about putting their money to work into oil and gas stocks following the volatility we witnessed in the industry in 2020, Enterprise offers predictability that few, if any, oil and gas companies can match.
Enterprise Products Partners is a midstream energy company. This is a fancy way of saying that it acts as a middleman for drilling companies. It operates more than 50,000 miles of transmission pipeline, can store in excess of 260 million barrels of liquids, as well as 14 billion cubic feet of natural gas, and it has 20 deepwater docks.
The advantage of being a midstream operator is simple: cash flow transparency. Around three-quarters of Enterprise's gross operating margin derives from its long-term, fixed-fee contracts with drilling companies. This type of contract removes the effects of inflation and commodity spot-price volatility from the equation, which leads to highly predictable cash flow. Being able to accurately forecast its cash flow a year or more in advance is what allows management the confidence to make acquisitions or increase its base annual distribution, which has grown for 25 consecutive years.
Macroeconomic factors are also a tailwind. Russia's invasion of Ukraine, combined with reduced capital investment from energy majors during the COVID-19 pandemic, has tightened the supply of oil globally and lifted the spot price of crude oil. This should entice drillers to up their production, which means even more lucrative long-term contracts for Enterprise.
A forward P/E of about 10 and a dividend yield of 7.3% make Enterprise Products Partners a rock-solid stock to own.
NASDAQ: YORW
Key Data Points
York Water
Small-cap stocks can be safe stocks, as well. Despite its diminutive market cap of just $536 million, water utility York Water (YORW +0.74%) is a smart stock to buy for the final three months of 2023.
The great thing about utility stocks is the cash-flow certainty they bring to the table. If you own or rent a home, there's a good chance you need water and wastewater services. Demand for these services isn't going to change much from one year to the next, leading to highly transparent cash flow. This transparency gives management the confidence to outlay capital for new projects and the company's dividend.
Additionally, most utilities operate as regulated monopolies or duopolies. Since homeowners and renters have limited choice as to which company provides their utility services, it means York Water's cash flow is even more predictable.
The big catalyst for York in 2023 is that the Pennsylvania Public Utility Commission gave it permission to raise rates on approximately 75,000 water and wastewater customers. This rate hike is in response to York committing $176 million to system improvements and infrastructure replacements. For the company, it means an added $13.5 million in annual revenue, which represents about a 22% increase from what was reported in 2022.
Lastly, when it comes to dividend consistency, York Water can't be beat. This under-the-radar company has been paying a consecutive dividend for the past 207 years, which is about six decades longer than any other publicly traded company.
NYSE: V
Key Data Points
Visa
The fifth genius safe stock to buy for the fourth quarter of 2023 is none other than payment processor Visa (V 0.80%). Though Visa is cyclical, and therefore prone to weakness during U.S. or global recessions, it has clear-cut competitive advantages that should help it navigate a challenging environment better than most financial stocks.
To start with, Visa's leadership has strictly kept the company focused on payment facilitation. As tempting as become a lender might be, doing so would potentially expose Visa to loan losses and credit delinquencies during economic downturns. With its focus solely on transactions, Visa doesn't have to be concerned about setting capital aside to cover loan losses if/when economic trouble arises.
Another clear advantage for Visa is its market share in the United States, the top market for consumption in the world. Based on Securities and Exchange Commission filings for 2021 from the four largest payment processors, Visa accounted for nearly 53% of the credit card network purchase volume in the United States. When coupled with how underbanked most emerging markets are, Visa has a lengthy growth runway.
Visa is also a company that can benefit from a higher inflation rate. Since it's generating most of its revenue from merchant fees, higher prices for basic necessity goods and services would be expected to increase Visa's topline.
The final selling point is that Visa is historically cheap. Its forward P/E ratio of 23.5 is the lowest in at least a decade.
