The broader market indexes would have you believe we’re in the midst of a steady, long-term recovery. But those of us trading individual stocks, especially more speculative penny and growth names, know the truth. This market is still quite choppy. We’ve already seen a handful of scary downturns this year. While they don’t look too dramatic on the S&P 500 chart, they can completely wreck a portfolio loaded with high-beta stocks.
So, what’s an investor to do in these moody markets? While I’m still bullish on long-term growth stocks, shifting a portion of your portfolio to more defensive, stable names is a smart move. You could miss out on some of the big returns high-flying stocks provide. But you’ll also sleep much better at night. Plus, many of these stocks offer substantial dividends, adding an extra protection layer.
Here are the seven stocks I think are perfect picks for a moody market.
Berkshire Hathaway (BRK-A, BRK-B)
One safe name that immediately comes to mind is Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B). Warren Buffett’s conglomerate just reported earnings that reinforce why this remains one of the best stocks to own during uncertain times.
Berkshire’s operating earnings jumped 7% in the second quarter to $10 billion, marking a new quarterly record. While overall net earnings swung to a $35.9 billion profit due to gains in Berkshire’s stock portfolio, Buffett wants investors to focus on the operating earnings as the best indicator of the company’s core performance. And by that measure, Berkshire continues to fire on all cylinders.
This growth was driven by strength in insurance underwriting and higher investment income, classic recession-resistant Berkshire businesses. Buffett put some of that cash to work by repurchasing $1.4 billion of Berkshire shares in Q2. While that’s down from the prior quarter, Buffett is a value shopper at heart. With the shares up 17% so far in 2023, he likely felt less compelled to aggressively buy back stock.
The bottom line is that Berkshire’s collection of best-in-class operating businesses, combined with Buffett’s patience and discipline, is a winning formula in both good times and bad. While the broader market obsesses over Fed rate hikes, supply chain woes, and the threat of recession, Berkshire just keeps humming along, producing steady results quarter after quarter. That’s why this remains one of the first stocks I’d recommend for nervous investors looking to play defense today.
Flowers Foods (FLO)
While iconic consumer staples stocks like Coca-Cola (NYSE:KO) and Procter & Gamble (NYSE:PG) get most of the attention, there’s a little bakery stock in the consumer defensive sector that I think offers one of the best bargains today – Flowers Foods (NYSE:FLO).
Flowers’ stock has languished this year, down 20% year-to-date. But the company delivered a standout second-quarter report that shows it still has plenty of growth left in the tank. Thanks to strong pricing power, quarterly revenues rose 8.8%, helping drive a 20% jump in earnings per share. Both numbers handily beat Wall Street’s expectations.
Flowers’ leading brands, like Nature’s Own and Dave’s Killer Bread, continue to resonate with consumers despite a challenging inflationary environment. And it’s seeing promising early signs that volume trends are starting to improve after customers traded down to cheaper private label products earlier this year.
Flowers also continues to expand its offerings into faster-growing segments like breakfast pastries and snacks. With shares trading at just 19-times forward earnings, I think FLO stock is priced as if growth is a thing of the past. But Flowers’ Q2 results show it still has plenty of attractive avenues for growth once pressures from inflation and consumer trade-down behavior ease. For investors with a long-term mindset, I think FLO stock at these levels is a very compelling buy.
Booz Allen Hamilton (BAH)
It’s easy to overlook the defense contractors that provide essential services to U.S. intelligence agencies. But as geopolitical tensions simmer, the mission-critical work they provide becomes more crucial than ever. One name I’ve had my eye on is Booz Allen Hamilton (NYSE:BAH).
Booz Allen works extensively with agencies like the NSA, NGA, and CIA. This quarter, revenues grew an impressive 18%, showcasing Booz Allen’s vital role in areas like cybersecurity and artificial intelligence. Adjusted earnings per share also beat expectations at $1.22, up 18.4% year-over-year.
While the stock has slipped 13% from its highs this year amid a broader defense sector pullback, I see a strong upside from current levels. Booz Allen continues to boast industry-leading organic revenue growth and margin expansion. And with a record backlog of $31.3 billion and a qualified pipeline, it has excellent visibility into future growth.
Moreover, geopolitical threats like cyberattacks, climate change, and rising global instability aren’t going away anytime soon. That means demand for mission-critical contractors like Booz Allen, that help U.S. intelligence agencies respond to these threats, will only intensify over time.
Industrial stocks have been under pressure this year amid recession fears, but one name that continues to churn out steady results is Linde (NYSE:LIN). The global industrial gas giant just delivered a strong quarterly report driven by pricing power and operating leverage.
LIN shares did initially slump post-earnings. But I think this just creates a better buying opportunity. Despite an uncertain macro outlook, Linde still grew earnings per share by 16% year-over-year. Its backlog remains robust at $7.8 billion, including $9-10 billion of clean energy opportunities expected to be decided in the coming years. The company continues to generate ample free cash flow it deploys into growth investments, returning ample capital to shareholders as well.
Some bears will argue that a recession threatens Linde’s end markets like manufacturing, chemicals, and metals. But here’s the thing – Linde operates in every major geography worldwide besides Antarctica. This diversification gives it an uncanny ability to navigate through regional slowdowns. For instance, while volumes are challenged in Europe, Linde continues posting solid growth in the Americas and Asia.
With economic uncertainty on the rise, one name that fits the bill perfectly for most investors is Mastercard (NYSE:MA). The payments network giant grew net revenue by 15% and earnings per share by 14% year-over-year on a currency-neutral basis in Q2. This was driven by continued strength in domestic spending, a recovery in cross-border travel, and solid growth in value-added services. Mastercard processed over 18 billion transactions during the quarter, reflecting the indispensability of its network.
Looking ahead, Mastercard expects net revenue to grow in the low double digits for the full year, in-line with its initial guidance. This consistency speaks to Mastercard’s dependability even amidst economic fluctuations. The company continues winning major deals worldwide, including a significant partnership with UniCredit, spanning 13 banks and 20 million cards. Thus, Mastercard offers visibility to steady earnings growth, robust margins near 55%, and secular tailwinds from the war on cash. The stock isn’t cheap at 33-times forward earnings, but premium companies rarely are. For investors seeking a payments leader to anchor their portfolio through ups and downs, Mastercard remains a go-to choice.
In times of market turbulence, I believe it pays to have some mega-cap stalwarts in your portfolio that can weather any economic environment. In this regard, one of my favorite defensive names continues to be PepsiCo (NASDAQ:PEP). The global snacks and beverages leader once again demonstrated its resilience this quarter.
PepsiCo delivered 10.4% revenue growth in Q2, surpassing expectations. Operating margins also rebounded to 11.6% from 10.1%. The company saw broad-based growth across its portfolio, with particular strength overseas. PepsiCo has incredible pricing power, managing double-digit price hikes amidst inflationary pressures. Additionally, volumes have remained resilient as customers continue to reach for PepsiCo’s diversified offerings.
Furthermore, PepsiCo anticipates 7.5% organic revenue growth for the full year. While the company does expect volumes to moderate, its scale, distribution reach, and brand equity provide confidence it can power through any economic slowdown. Notably, PepsiCo has an exceptional track record of steadily expanding earnings per share, targeting 7% annual growth.
Between its 2.9% dividend yield and frequent buybacks, PepsiCo also returns ample cash to shareholders. The stock may seem a bit pricey near 23-times forward earnings. But for a high-quality, defensive name like PepsiCo, I believe investors should pay up for the stability. This remains a core long-term holding.
American Airlines (AAL)
The airline sector has been one of the more difficult for investors to navigate in recent years. But I believe American Airlines (NASDAQ:AAL) has huge upside potential as the travel recovery kicks into higher gear. The company reported record quarterly revenue and earnings that handsomely beat estimates.
In Q2, revenues grew nearly 5% year-over-year, and operating income soared to $2.2 billion. This was American Airline’s highest-ever quarterly operating income, showcasing how its operational and commercial improvements are paying dividends. The airline also generated robust free cash flow and paid down debt, earning a two-notch upgrade from Fitch.
While rising fuel costs and economic uncertainty present near-term headwinds, American Airlines shows no signs of demand deterioration. Advance bookings remain strong, particularly for international travel. It expects to produce around $3 billion of free cash flow this year to pay down debt and invest in the business.
Despite its operational turnaround and strengthening balance sheet, American Airlines still trades at a substantial discount to historical valuation levels. Its stock remains flat year-to-date and remains over 78% off its 2018 high. For long-term investors willing to look past some short-term turbulence, I believe American Airlines offers exceptional recovery potential.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.