Let's face it, the stock market hasn't exactly gotten off to a great start in 2016. However, the three stock picks our Foolish contributors offer below should be fairly safe investing vehicles -- even in turbulent markets such as this one.
I think Botox-maker Allergan (AGN) has got to be considered one of the safest picks in the market right now for a number of reasons. First off, there's its forthcoming merger with Pfizer (PFE -0.53%) -- along with the sale of its generic drug unit to Teva Pharmaceutical Industries (TEVA -0.57%) -- that are major value drivers that are probably being woefully underappreciated by the market right now.
Putting those game-changing deals aside for the moment, though, Allergan still offers investors tremendous value as a standalone entity because of its high-growth branded pharma business. For example, it recently reported that annual sales for its irritable bowel syndrome drug Linzess and its Alzheimer's treatment Namenda XR grew by 163% and 182%, respectively, in 2015.
Keeping with this theme, Allergan's net U.S. revenue from branded drugs in the fourth quarter increased by a healthy 38% to $2.5 billion, compared to the same period a year ago. Most important, this double-digit growth trend should only continue for the foreseeable future as the company is expected to launch several branded pharma products this year.
So, I think in the absolutely worst-case scenario, where both the merger with Pfizer and the transaction with Teva blow up, Allergan remains a safe pick because of a top-flight branded drug portfolio that's currently driving astonishingly high revenue growth for the company.
The Clorox Company (CLX -2.12%) is a market leader in the household products industry. It owns brands such as Glad, Hidden Valley, and Burt Bees, among others. Thanks to its brand power and massive distribution network, Clorox makes 80% of sales from brands occupying the first or second market-share position in their respective segments.
Management has produced tons of value for shareholders over the last two decades. Clorox has delivered returns of 1,068% from 1995 to 2015, comfortably beating its peer group, which produced a total shareholder return of 741% over that period, and almost tripling the accumulated return of 382% produced by the S&P 500 index.
Being a market leader in a mature industry, it's not easy for Clorox to find new growth opportunities; however, management believes the company is on track to sustaining solid financial performance. Clorox's growth plan toward 2020 includes growing sales in the range of 3% to 5% per year, increasing EBIT margin by 20 to 25 basis points annually, and generating free cash flow in the range of 10% to 12% of revenue.
The company has increased its dividends in each and every year since 1977, including its 4% dividend hike for 2015, when it raised quarterly payments from $0.74 per share to $0.77. The dividend yield stands at nearly 2.4%, and the payout ratio is quite reasonable at nearly 60% of earnings forecasts for the current fiscal year.
Some people use a metric such as beta (which measures a stock's volatility against a benchmark like the S&P 500) to look for safe stocks. And while this can be a good place to start, there's more than just low volatility that should be considered. For me, I'm less concerned about beta, and short-term stock price volatility, than I am about finding the strongest companies with durable competitive advantages, solid balance sheets, and capable managers running the show.
And a company that stands out from the crowd in those regards is energy giant Phillips 66 (PSX -1.65%).
As a buyer of oil and natural gas, Phillips 66 isn't exposed to the kinds of commodity pressures that producers are. This is a huge part of what makes the company a safer investment than most oil companies. Actually, it can benefit from low U.S. oil and natural gas prices, since cheaper feedstocks can mean wider profits.
So while many oil and gas companies have been losing billions of dollars, Phillips 66 continues to operate profitably. Over the past year, the company has produced more than $5 billion in cash from operations, has more than $3 billion in cash on its balance sheet, and its $8.9 billion in debt is very low-cost. Over the past 12 months, Phillips 66 has only had to pay $266 million in interest expenses, or about 3.2% annually. Over the same period, the company has earned more than a 13% return on invested capital, meaning that the cost of its debt is well worth it in capital returns.
Lastly, the company's management is top-notch, and has done a fantastic job of allocating all those profits to growth in petrochemicals and natural gas transportation, while also returning billions to shareholders in stock buybacks and dividends. If you're looking for a safer stock in the energy business, they don't get much better than Phillips 66.