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The stock market continues to butt up against new all-time highs. But for some investors, the run seems too good to be true.
Furthermore, disappointing May job growth reported on Friday rekindled the debate over whether “soft” metrics like consumer confidence are false positives, since several recent data points show the U.S. economy as quite sluggish.
So are new highs in the S&P 500 (SPX) going to last? Or is all this about end in tears for investors?
Regardless of your point of view on the overall market, all investors should be very wary as we enter the lazy days and low volume of summer. Volatility can pick up and a lack of news out of Wall Street and Washington can result in plenty of noise and not enough signal.
That means now is the time to focus on the overall stability of your portfolio, and not get caught up in the tug of war between bulls and bears. In both good times and bad, every portfolio needs bedrock investments to reduce overall risk and to preserve hard-fought gains without leaving profit potential on the table if the rally continues.
So whether you’re greedy or fearful right now, you should take a good look at your investments and make sure you have a firm foundation. Here are five picks that may be worth adding to achieve that:
1. Duke Energy
Utilities are among the most stable stocks an investor can buy, since they are highly regulated near-monopolies that provide reliable cash flow. Duke Energy Corp (DUK) is a solid investment for these general reasons, but offers a few advantages over its peers.
For instance, while some utilities are struggling with no-growth operations, Duke Energy will see revenue grow more than 7% this year, according to analyst estimates, and initial forecasts for 2018 show modest sales growth then too. The company has met or exceeded profit expectations for four consecutive quarters, and is set to see EPS move higher both this year and next, too. That’s a big reason for Duke’s outperformance year-to-date in 2017 with gains of more than 11%.
The stock trades for a more modest valuation than other utilities after this run, and the kicker is that it offers a nice yield of 4.0% on top.
2. Deutsche Bank
A year or so ago, many investors still thought financial stocks too risky in the wake of Lehman Brothers and Bear Stearns. Others think Europe is a no-growth value trap.
But a surge for financials since Donald Trump’s election and the outperformance of Europe in 2017 has rekindled interest in stocks like Deutsche Bank AG (DB)(DE:DBK) and for good reason.
Deutsche Bank is trading at roughly half its tangible book value of around $40 a share, a steal that is unmatched in the sector. Yes, earnings are set to decline this year and revenue should be flat. But the rock-bottom valuation of this stock makes that performance very much priced into the stock.
And broadly, European growth metrics are pointing up. Eurozone manufacturing was up to a record pace in May, and at the end of 2016, eurozone GDP (anemic as it was) topped U.S. growth for the first time since the global financial crisis. This bodes well for this dominant German bank.
Lastly, it’s important to acknowledge the importance geographic diversification in your portfolio. If you really want a stable foundation for your investments, then you need to consider looking overseas as well as at U.S. equity. At this price, Deutsche Bank is as good a way as any to gain that exposure.
3. Johnson & Johnson
Johnson & Johnson (JNJ) is a cliché pick for low-risk investors, but for good reason. J&J has a dominant place in all family budgets thanks to products that include Listerine mouthwash and Tylenol medications. It’s also one of just two corporations with a triple-A credit rating — Microsoft Corporation (MSFT) being the other one.
While some investors may have lost faith in Johnson & Johnson in the years after the Great Recession, when growth was hard to come by and the company seemed stuck in a rut, the past few years have proved those days are behind J&J. The $340 billion behemoth is tracking roughly 5% revenue and EPS growth this year, and could top those metrics in 2018 if forecasts hold.
The icing on the cake is a dividend of 2.6% and shares that have climbed by 12% so far in 2017 to hit a new 52-week high.
4. Omega Healthcare
REITs are sensitive to rising interest rates as a group, and many have fallen out of favor lately. However, long-term investments in health-care real estate and senior living properties are as close to a sure-thing as you can get right now — and that’s what Omega Healthcare Investors Inc (OHI) offers investors.
That, and a tremendous 8.0% dividend annually.
There are risks here, of course, what with the current fight over health-care reforms and the chance of Medicare and Medicaid payments being reduced — a big weight for Omega and similar senior housing plays.
But the difference is that Omega Healthcare is not a provider itself. It is just a landlord, and any changes in health-care regulations are the tenants’ problem to work out. Furthermore, Omega operates “triple-net lease” properties, which means it’s liable for the three big add-ons that handcuff other REITs — taxes, maintenance and insurance. Omega quite literally just collects the rent.
Between the big yield and the chance of continued growth thanks to demographics, this is a solid stock that will provide stability as well as upside in the months and years ahead.
5. Enterprise Products Partners
MLPs offer big dividend payouts (or “distributions” for nitpicky investors who like to sound smart) , but lately there has been a lot of carnage in the industry. After all, crude oil remains under pressure thanks to weak demand and oversupply.
But much like Omega is a landlord and not a health-care provider, pipeline operator Enterprise Products Partners L.P. (EPD) isn’t an energy company in the traditional sense. While exploration and production companies have to take on big debts on the hopes that they will be able to tap a big oil or gas field, this firm is the middleman between producers and the marketplace.
The company operates more than 49,000 miles of pipeline, 260 million barrels of crude-oil storage and another 14 billion cubic feet of natural-gas storage. Other companies use this infrastructure to transport their energy, making Enterprise Products Partners a toll-taker charging companies that use its infrastructure and insulating it from the volatility in energy prices.
Sure, when oil and gas prices are weak, there is less incentive to bring the products to market … but many smaller companies cannot afford to curtail production too much or they won’t be able to make their payrolls and pay back lenders. That means this stock has what it takes to succeed regardless of what the market throws its way.
Another plus: reliable cash flow and a 6.2% yield.