If you ever want to reach your financial goals, you know that 0.01% rates on your savings account aren't going to get you there. No matter how scary they may seem, stocks and other higher-risk investments are what you need to produce the returns that will boost even modest savings into substantial sums over the long haul.
But after an extremely strong quarter for the stock market to begin 2012, you may feel like it's too late to get into the market. The last thing anyone wants to do is to buy at the end of a big run-up, only to watch their shares lose value right after they get up the courage to invest.
One solution is to pick strong, stable stocks that don't move around as much as some of their peers. These stalwarts don't rise as much during big bull moves, but they also do a better job of avoiding losses during down markets. That might be just the ticket if you've been reluctant to get your money invested in stocks since the market's big meltdown three years ago.
Tiptoeing back into the market
Searching for stocks with conservative attributes isn't as hard as you might think. As a simple starting point, I ran a quick screen that looked for large-cap stocks with three particular traits: a dividend yield of 3% or more, at least 15% return on equity, and a beta less than 0.5.
The value of a nice dividend is easy to understand, and return on equity tells you how effective a company is in managing its capital. But beta is something that many investors aren't familiar with. Beta is a measure of stock-price volatility; the lower the beta, the less a company's shares move in response to changes in the market. It doesn't mean the stock won't move independently, but all other things being equal, low-beta stocks aren't tied as closely to market moves as high-beta stocks are.
Finally, I eliminated stocks that were within 5% of their yearly highs. Let's take a look at the companies that made it through those tests.
The beverage and snack giant needs no introduction even to beginning investors. With a strong presence in the U.S., Pepsi has looked to emerging markets for new growth opportunities. Carrying a 3% dividend yield and 30%+ returns on equity, Pepsi has held up well during market declines and has room to run as the global economy stabilizes.
Utilities have already seen strong runs. But Exelon largely got left out of the boom as it has particularly high exposure to nuclear power, which has come under fire ever since last year's Japanese reactor failure after the earthquake and tsunami that hit the island nation. With a yield of nearly 4% and a stock that's now nearly 15% below its highs, Exelon could be a value bargain, especially if you believe in the long-term necessity of nuclear power generation.
Kinder Morgan Energy Partners
Again with an energy theme, Kinder Morgan has a wide array of pipelines carrying oil and natural gas to where they're needed. Its impending takeover of El Paso will only add to its arsenal, and as a master limited partnership, unitholders share in lucrative distributions of profits. Less vulnerable to energy price fluctuations than oil producers, Kinder Morgan makes a worthy addition to a diversified portfolio.
Consumer staples are an obvious pick for a defensive portfolio. But Kellogg has gotten aggressive lately, buying the Pringles division of Procter & Gamble as the cereal maker swooped in after Diamond Foods failed in its controversial bid for the snack unit. With a 3% dividend and growth prospects, Kellogg looks like a smart part of a balanced portfolio.
Again following the food theme, Campbell shares Kellogg's strong return on equity in the 60% to 70% range, and slightly beats out the cereal maker with a 3.4% yield. With a beta of just 0.17, Campbell is not a stock that reacts much to the market, instead responding to its own growth prospects and cost headwinds.
The longer you stay on the sidelines, the more time you'll lose in your quest for a comfortable retirement or whatever nearer-term financial goals you may have. These stocks won't be tomorrow's multibaggers, but they will give you a chance at better returns than your savings account -- and that's never been more important than it is now.
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