Insights

3 Steady Stocks That Are Perfect for Riding Out Market Volatility

Many investors are having a challenging time navigating through the volatile market this year, as major indices like the S&P 500 and Nasdaq are down 21% and 30% year to date, respectively. Many previously high-flying growth stocks have been pummeled, and popular tickers have whipsawed between extreme swings in sentiment.

One way to get through the volatility is to pick a few steady, resilient stocks that can not only survive but thrive in any economic environment. Investors can “set it and forget it” with these three recession-resistant, dividend-paying stocks that should be good investments for the present market environment and over the long term. 

Image source: Getty Images.

1. Franchise Group 

Franchise Group (NASDAQ: FRG) has been in the news recently as the company that may acquire Kohl’s. Beyond the Kohl’s acquisition, Franchise Group looks like an attractive investment over the long term and one that is well positioned to fight through any economic turbulence. Franchise Group owns franchised and franchisable businesses. It has a portfolio of businesses that include The Vitamin Shoppe, Sylvan Learning Centers, Pet Supplies Plus, and various furniture retailers like American Freight and Badcock Home Furniture & More, as well as Buddy’s, which offers rent-to-own options for furniture, appliances, and electronics.

The pet care industry is recession-resilient because people still need to buy food and supplies for their pets, no matter how the economy is doing. The Vitamin Shoppe sells health-related products like vitamins and supplements that people still buy no matter what the stock market is doing, and Vitamin Shoppe actually saw its business increase during the pandemic as many consumers became more health conscious. American Freight and Badcock should fare well as they sell furniture at the more affordable end of the market. For a business like Buddy’s, business may even improve in a worsening economy, as more consumers may need to turn to rent-to-earn options.

Franchise Group keeps growing and acquiring attractive businesses like these, and it also keeps growing its dividend — from $1 a share in 2019 to $2.50 today. Furthermore, the company is returning capital to shareholders with a massive $500 million buyback program that authorizes it to buy back almost one-third of its shares outstanding over the next three years. Lastly, shares look cheap, trading at under seven times earnings.

Franchise Group is down considerably year to date, in part because some investors are skittish about taking on a large acquisition like Kohl’s in this environment. But it is still outperforming the market over the past year with a 7% gain versus losses of 21% and 30% for the S&P 500 and Nasdaq, respectively. 

2. Phillip Morris 

Phillip Morris International (NYSE: PM), the global tobacco giant with a $150 billion market cap, is about as defensive as they come. The company sells cigarettes and other tobacco products, which consumers buy habitually and are unlikely to stop buying just because of economic uncertainty. Like Franchise Group, Phillip Morris also pays an attractive dividend that is well above that of the market, with a yield of over 5%. Phillip Morris trades at a reasonable 17 times earnings, which isn’t bargain-bin cheap, but it is about in line with the broader market.

While Phillip Morris is a resilient, defensive stock, the added bonus is that it has some interesting growth drivers in its bag as well. Its smokeless IQOS product has been a home run for the company. While the product is not approved for use in the U.S. at this time, the company says it added over 1 million new users worldwide during the first quarter of 2022, giving it a total of 18 million. Meanwhile, Phillip Morris wasn’t satisfied with stopping there — the company is in the process of acquiring Swedish Match, the company whose Zyn nicotine pouch product is making waves in the U.S. and worldwide. Phillip Morris views this as a $1 billion market with 80% category growth in the U.S. in 2021, and finds that Zyn has over 60% market share.  

Phillip Morris has outperformed the market handily year to date, with a gain of about 3% versus the aforementioned losses for the major indices. 

Coca-Cola 

Last but not least, Dividend King Coca-Cola (NYSE: KO) is always a good choice to bolster a resilient portfolio. While the $258 billion consumer staple juggernaut’s dividend yield is not as high as that of Phillip Morris or Franchise Group, it is still a market-beating 2.9%. And the company has been growing the payout for 60 straight years and counting.

Part of the reason that the yield isn’t higher is that Coca-Cola has performed well over the past year, so the yield has gone down as the stock price has increased. Proving that it is a resilient stock, Coca-Cola is up 7% over the past year, whereas the S&P 500 and Nasdaq are down 11% and 22%, respectively, over the same time frame. 

Like Phillip Morris, Coca-Cola is a consumer staples giant that sells products customers buy routinely and habitually. A changing economy is not going to stop someone from filling up a Coke from the fountain at a fast-food restaurant or buying the 2-liter bottles that they get every week at the grocery store. 

The company’s valuation of almost 25 times earnings doesn’t scream cheap, but Coca-Cola has shown it’s a rock-solid performer throughout multiple market conditions so it has probably earned this premium.  

Set it and forget it 

While market volatility is causing some investors to lose sleep at night, you really can’t go wrong by hunkering down with high-quality, defensive blue-chip stocks. These names are trading at reasonable or even cheap valuations, paying market-beating dividends, and engaging in recession-resistant businesses. With a steady “set it and forget it” portfolio like this, you can not only weather the volatility but also have a handful of long-term winners as well.

Michael Byrne has positions in Franchise Group, Inc. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.

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