Please ensure Javascript is enabled for purposes of website accessibility

3 Investment Opportunities for Scared Investors

By Dan Caplinger - Apr 16, 2013 at 11:30AM

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

Don't stop investing, but be more careful about how you invest.

Plunging markets are always scary, but they also create great investment opportunities for those who are brave enough to reach out for them. Below, you'll find three smart ways to put your money to work to take advantage of markets in turmoil without losing your nerve in the face of market volatility.

1. Dividend growth stocks
If you want income from your portfolio, finding investment opportunities in stocks that pay dividends is your best bet right now. Although bond investments have provided strong total returns in recent years, most of those returns have come from price-gains related to falling interest rates. Looking forward, a potential reversal of rate declines could lead to a substantial drop in bond prices, hurting investors who jump in now.

By contrast, you can find many lucrative opportunities in dividend stocks. But rather than focusing on the highest yield you can find -- which often backfires when those companies slash their payouts -- look instead at stocks that have consistently grown their dividends over time. Procter & Gamble (PG -2.65%) just raised its dividend by 7%, marking the 57th consecutive year that the company has made an increase to its payout rate. Office-products conglomerate 3M (MMM -1.75%) has almost as impressive a streak of 55 years of annual dividend increases, with its own 8% raise back in February. Sticking with proven winners like these stocks is a great way to appease your fears of investing near all-time stock market highs.

2. Low-volatility stocks
Another place where investors have a golden opportunity to protect their portfolios is in stocks whose price movements are less extreme than the market average. Studies have shown that low-volatility stocks actually provide better returns than their high-volatility counterparts, going against conventional wisdom that says that higher risk always yields higher potential return.

One sector with a good opportunity for investment right now is the pharmaceutical industry. In particular, Merck (MRK -0.69%) has done a good job of weathering its patent storm and developing promising new drugs for its pipeline, with a solid dividend going well together with its stable stock price. Similarly, AbbVie (ABBV -1.52%) is still getting used to its status as an independent company, but even with the challenge of going beyond its blockbuster Humira to build up its long-term prospects, the company has a stable of other drugs that could help it deliver good results in the future.

3. Value-priced tech company stocks
One of the biggest investment opportunities lately has been in beaten-down technology stocks. For instance, microprocessor giant Intel (INTC -0.17%) faces the monumental task of moving beyond the PC to bolster its nascent line of mobile chips. But its earnings multiple of just 10 reflects skepticism that the company has any prospects for future growth. As challenging as getting into the mobile market may be for Intel, investors are getting a margin of safety from the company. You can find similar bargains among several beaten-down big tech companies due to overall pessimism about the industry's prospects -- pessimism that may prove unfounded.

Seize the opportunities
Investing in a roller-coaster market makes even the best investors nervous. But capitalizing on investment opportunities that market declines present gives you the best chance at maximizing your returns over the long run.

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

Intel Corporation Stock Quote
Intel Corporation
$42.28 (-0.17%) $0.07
Merck & Co., Inc. Stock Quote
Merck & Co., Inc.
$91.46 (-0.69%) $0.64
The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
$141.19 (-2.65%) $-3.85
3M Company Stock Quote
3M Company
$146.32 (-1.75%) $-2.61
AbbVie Inc. Stock Quote
AbbVie Inc.
$150.11 (-1.52%) $-2.32

*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 service.

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 05/19/2022.

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.