Supply chain issues and a decrease in consumer spending have caused the United States economy to slow down in the past few months. Latest data released by the US Department of Commerce reveals that the Gross Domestic Product (GDP) of the US grew at an annualized rate of just 2% between June and September, the slowest quarterly growth since the 31% crash at the beginning of the COVID-19 crisis in early 2020. Another worrying sign was the widening of the US trade deficit, which touched a record high of $73 billion in August.
However, the change in consumer spending represented the biggest problem for the GDP growth since it makes up almost 70% of the $23 trillion US economy. According to the latest numbers, the growth in consumer spending slowed down to 1.2% in the third quarter this year, a more than 10% decrease from the previous quarter. Government bond yields climbed after the numbers were released and the stock market reacted cautiously.
In this overall volatile environment, it is best that investors prepare their portfolios for the tough months ahead as supply chain issues continue to play havoc with prices and lead to inflation fears. Some of the best low risk stocks to buy right now include T-Mobile US, Inc. (NASDAQ:TMUS), Merck & Co., Inc. (NYSE:MRK), and Bristol-Myers Squibb Company (NYSE:BMY), among others discussed in detail below.
Best Low Risk Stocks to Buy Now
10. Hormel Foods Corporation (NYSE:HRL)
Number of Hedge Fund Holders: 24
Hormel Foods Corporation (NYSE:HRL) is one of the safest stocks to invest in. It has an impressive dividend history going back decades. In late September, the firm declared a quarterly dividend of $0.245 per share, in line with previous. The forward yield was 2.39%. The company, which markets meat products, has recently announced that it would be partnering with another meat firm to bring a new type of plant-based meat product into the market.
JPMorgan analyst Thomas Palmer recently upgraded Hormel Foods Corporation (NYSE:HRL) stock to Neutral from Underweight with a price target of $42, underlining that the operating margin of the firm would benefit from recent price increases across the industry.
At the end of the second quarter of 2021, 24 hedge funds in the database of Insider Monkey held stakes worth $562 million in Hormel Foods Corporation (NYSE:HRL), down from 26 the preceding quarter worth $483 million.
In its Q4 2020 investor letter, Nelson Capital Management, an asset management firm, highlighted a few stocks and Hormel Foods Corporation (NYSE:HRL) was one of them. Here is what the fund said:
“We had a quiet fourth quarter, making just one swap within our consumer staples sector. We sold our position in Hormel (tkr: HRL). Hormel has seen tailwinds from the pandemic, as the maker of Spam and Skippy peanut butter has experienced higher demand from nervous consumers seeking out products with longer shelf lives. The stock had risen 18% year-to-date and its price-to-earnings (P/E) ratio had expanded from 25x to over 31x. Hormel pays a 2% dividend which is lower than many of its peers in the consumer staples sector. Furthermore, Hormel’s Jennie-O Turkey brand has experienced disruption in recent years as raw material over- or undersupply has caused large swings in revenue that lead to unpredictability. We decided to seek out better opportunities within the sector, particularly looking for a more attractively valued company that pays a higher dividend and sells everyday products that people will buy even in times of economic distress.”
9. Kellogg Company (NYSE:K)
Number of Hedge Fund Holders: 32
Morgan Stanley analyst Pamela Kaufman recently assumed coverage of Kellogg Company (NYSE:K) stock with an Equal Weight rating and a price target of $64. The ratings update came a few days after the company announced that it would be investing $45 million to optimize the supply chain as part of a plan to weather inflation. On October 29, the firm declared a quarterly dividend of $0.58 per share, in line with previous. The forward yield was 3.78%.
In August, Kellogg Company (NYSE:K) had declared quarterly earnings, reporting earnings per share of $1.14, beating estimates by $0.11. The revenue over the period was $3.5 billion, beating predictions by $120 million.
At the end of the second quarter of 2021, 32 hedge funds in the database of Insider Monkey held stakes worth $482 million in Kellogg Company (NYSE:K), the same as in the previous quarter worth $557 million.
8. The J. M. Smucker Company (NYSE:SJM)
Number of Hedge Fund Holders: 34
The J. M. Smucker Company (NYSE:SJM) makes and sells branded food and beverage products across the world. Although the company beat market expectations on earnings per share and revenue in the second quarter, inflation fears have dominated headlines around the food industry in recent weeks, with Mark Smucker, the CEO of the firm, affirming in late August that pandemic-related inflation had resulted in a margin squeeze.
However, since the fundamentals of the firm are strong, analysts are backing the stock to perform in the coming months. Bank of America analyst Bryan Spillane has a Neutral rating on The J. M. Smucker Company (NYSE:SJM) stock with a price target of $140.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in The J. M. Smucker Company (NYSE:SJM) with 4.9 million shares worth more than $16 billion.
In its Q4 2020 investor letter, Roubaix Capital LLC, an asset management firm, highlighted a few stocks and The J. M. Smucker Company (NYSE:SJM) was one of them. Here is what the fund said:
“Companies including J.M Smucker Company (SJM) have seen their sales accelerate to unsustainable levels that are not consistent with their mature end markets. We expect sales to slow and eventually give back some of the one-time gains caused by the unusual circumstances of 2020. Further, we question the sustainability of current peak valuations in the face of likely peak sales. We believe companies with such characteristics could face a combination of negative earnings revisions and lower valuations as the demand reality sets in this year. We also anticipate that companies that have benefited from consumers being homebound will see very challenging comparisons in 2021. No doubt, spending on home improvement and furnishing grew at unsustainable rates in 2020.”
7. General Mills, Inc. (NYSE:GIS)
Number of Hedge Fund Holders: 37
In late September, General Mills, Inc. (NYSE:GIS) posted earnings for the first fiscal quarter, reporting earnings per share of $0.99, beating predictions by $0.10. The revenue over the period was $4.5 billion, up 4% year-on-year. Stretching a remarkable dividend history going back decades, the company also declared a quarterly dividend of $0.51 per share, in line with previous. The forward yield was 3.42%.
General Mills, Inc. (NYSE:GIS) is expected to benefit from the recent defensive positioning in the market and the attractive valuation of food stocks. The drop in Treasury yields could also be a factor that contributes to a net positive sentiment around the firm.
n its Q3 2021 investor letter, Oakmark Funds, an asset management firm, highlighted a few stocks and General Mills, Inc. (NYSE:GIS) was one of them. Here is what the fund said:
“In the 1970s, blackout rules prevented televising NFL home games that weren’t sold out. It was always uncertain whether or not the Minnesota Vikings’ games would be televised. I remember how excited I’d be each week hearing that General Mills had purchased the remaining tickets, allowing the game to be on TV. Some said General Mills did this for its stakeholders—its employees and community—as opposed to maximizing profits for its shareholders. I believe stakeholders and shareholders both benefitted.
Consider the long-term benefits of General Mills being the hero that let us watch those games. It made employees proud of their employer and maybe helped with talent acquisition. The thousands of disadvantaged kids who got to attend NFL games were perhaps more likely to become General Mills customers or employees. And across the state, maybe we were all more likely to buy Betty Crocker cake mix instead of Duncan Hines. While the tickets were purchased in the name of being a good corporate citizen, I believe it was the most effective marketing ever done by General Mills and clearly benefitted the company’s shareholders.
Would Friedman argue against this spending because it reduced profits? Absolutely not. His writing from more than 40 years ago sounds eerily timely: “In the present climate of opinion, with its widespread aversion to ‘capitalism,’ ‘profits,’ the ‘soulless corporation’ and so on, this is one way for a corporation to generate goodwill as a by-product of expenditures that are entirely justified in its own self-interest.
General Mills accepted lower short-term profits in its pursuit of higher long-term value. And the stakeholders also benefitted. In The Heart of Capitalism, Joly states that “shareholder or stakeholder” tradeoffs are artificial because an “and” solution often exists. “We maximize performance not by choosing between stakeholders, but by embracing all of them. We choose employees and customers and shareholders and the community.” Joly cites examples from his time at Best Buy, including reducing its carbon footprint by installing LED lights throughout the stores. “This helps the environment and helped us save money on our energy consumption. Again, not a zero-sum game.”
6. Verizon Communications Inc. (NYSE:VZ)
Number of Hedge Fund Holders: 63
For those who want to avoid market volatility, Verizon Communications Inc. (NYSE:VZ) offers one of the best options. The company has a stable business that churns out steady profits. Most analysts are constructive on the stock. Cowen analyst Colby Synesael recently raised the price target on the stock to $71 from $68 and kept an Outperform rating, noting that the stock appeared “meaningfully undervalued” on the back of solid earnings.
Verizon Communications Inc. (NYSE: VZ) has recently secured a task order worth $78 million with the Naval District Washington. The firm has also partnered with Amazon to develop communications capabilities of remote areas across the United States.
At the end of the second quarter of 2021, 63 hedge funds in the database of Insider Monkey held stakes worth $10.9 billion in Verizon Communications Inc. (NYSE:VZ), down from 69 in the previous quarter worth $11.3 billion.
In addition to T-Mobile US, Inc. (NASDAQ:TMUS), Merck & Co., Inc. (NYSE:MRK), and Bristol-Myers Squibb Company (NYSE:BMY), Verizon Communications Inc. (NYSE: VZ) is one of the stocks that hedge funds are buying.
In its Q1 2021 investor letter, Miller/Howard Investments, an asset management firm, highlighted a few stocks and Verizon Communications Inc. (NYSE:VZ) was one of them. Here is what the fund said:
“We sold Verizon (VZ) based on concerns over how much they might spend in ongoing spectrum auctions. Management may legitimately view spending billions of dollars to expand their spectrum holdings as necessary, but we believe the payoff will be slow and will make it challenging to grow the dividend at a good pace.”
5. The Procter & Gamble Company (NYSE:PG)
Number of Hedge Fund Holders: 68
The Procter & Gamble Company (NYSE:PG) is one of the most stable stocks on the market. The company markets consumer packaged goods. Bank of America analyst Bryan Spillane recently initiated coverage of the stock with a Buy rating and a price target of $160, noting that bigger brands were adapting better to market dynamics than smaller ones in the direct-to-consumer capability.
On October 20, The Procter & Gamble Company (NYSE:PG) declared a quarterly dividend of $0.8698 per share, in line with previous. The firm beat market expectations on earnings per share by $0.02 in the first fiscal quarter results posted a day earlier.
Among the hedge funds being tracked by Insider Monkey, London-based investment firm Cedar Rock Capital is a leading shareholder in The Procter & Gamble Company (NYSE:PG) with 7.5 million shares worth more than $1 billion.
4. Bristol-Myers Squibb Company (NYSE:BMY)
Number of Hedge Fund Holders: 73
Bristol-Myers Squibb Company (NYSE:BMY) makes and sells biopharmaceutical products. It operates from New York. The company recently posted earnings for the third quarter, reporting earnings per share of $2, beating market estimates by $0.08. The revenue over the period was $11.6 billion, up 10% year-on-year and beating market predictions by $100 million. The firm also raised guidance numbers for the fiscal year in the earnings report.
Citi analyst Andrew Baum has a Buy rating on Bristol-Myers Squibb Company (NYSE:BMY) stock with a price target of $73. In an investor note, Baum has said that reports that the firm is looking to acquire Aurinia Pharmaceuticals make “sense” in terms of commercial synergies.
At the end of the second quarter of 2021, 73 hedge funds in the database of Insider Monkey held stakes worth $4.5 billion in Bristol-Myers Squibb Company (NYSE:BMY), down from 81 in the preceding quarter worth $5.7 billion.
In its Q4 2020 investor letter, Wedgewood Partners, an asset management firm, highlighted a few stocks and Bristol-Myers Squibb Company (NYSE:BMY) was one of them. Here is what the fund said:
“Bristol-Myers Squibb recently reported accelerating sales as much of the medical services industry returned to work. The Company continues to expect double-digit earnings growth over the next few years, driven by existing drugs, in addition to a broad pipeline of new drugs and indications. While the market remains fixated on a couple of patent expirations that could occur over the next several years, we think this is well-known at this point, yet the market still undervalues a couple of key acquisitions the Company has made in the past few years, particularly Celgene, which was acquired for a song.”
3. Merck & Co., Inc. (NYSE:MRK)
Number of Hedge Fund Holders: 79
Merck & Co., Inc. (NYSE:MRK) is another healthcare giant that features on our list of the best low risk stocks to buy now. The company markets a range of healthcare products that are likely to provide investors with plenty of cover in case of economic upheaval. The firm recently entered into an agreement with Gilead Sciences for trials of a new drug for the treatment of breast cancer patients.
On October 22, investment advisory SVB Leerink maintained an Outperform rating on Merck & Co., Inc. (NYSE:MRK) stock and raised the price target to $105 from $104. Daina Graybosch, an analyst at the firm, issued the ratings update.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Merck & Co., Inc. (NYSE:MRK) with 10.3 million shares worth more than $802 million.
In its Q1 2021 investor letter, Artisan Partners highlighted a few stocks and Merck & Co., Inc. (NYSE:MRK) was one of them. Here is what the fund said:
“In Q1, we initiated a position in Merck, a provider of health care solutions including prescription medicines, vaccines, biologic therapies, animal health and consumer care products. We purchased Merck when the stock came under pressure in part on concerns that the newly minted Biden administration could implement regulatory changes and lower drug costs in the pharmaceutical industry. Recent, but anticipated changes to Merck’s management team have also weighed on shares, as have concerns over the company’s heavy reliance on immunotherapy treatment Keytruda. Notably, Merck is not getting much credit from investors for the 60+ programs it has in clinical development, despite having several solid and large new product opportunities. Additionally, the company’s strong balance sheet and robust free cash flow provide it multiple options for future partnerships and acquisitions. While Merck is undergoing a period of transition, we think the company’s fundamentals are strong and believe changes to management should be a catalyst for improvement.”
2. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 88
On October 21, health authorities in the United States granted approval to the COVID-19 booster shots developed by Johnson & Johnson (NYSE:JNJ) and Moderna. The booster shots were approved for people aged 18 years or older who were administered the initial vaccine dose about two months ago. The same day, the company had declared a quarterly dividend of $1.06 per share, in line with previous. The forward yield was 2.6%.
There are other drug-related positives for the firm as well. On October 15, Johnson & Johnson (NYSE:JNJ) had announced that authorities in Canada had granted approval for OPSYNVI, a drug developed by the firm to treat pulmonary arterial hypertension.
At the end of the second quarter of 2021, 88 hedge funds in the database of Insider Monkey held stakes worth $7 billion in Johnson & Johnson (NYSE:JNJ), up from 81 in the previous quarter worth $6.9 billion.
1. T-Mobile US, Inc. (NASDAQ:TMUS)
Number of Hedge Fund Holders: 100
T-Mobile US, Inc. (NASDAQ:TMUS) is perhaps the largest communications company in the world. It is certainly a hedge fund favorite and features among the 20 most popular firms among hedge funds. Wells Fargo analyst Eric Luebchow recently kept an Overweight rating on the shares but lowered the price target to $160 from $170, noting that the recent pullback in share price represented a buying opportunity for investors.
T-Mobile US, Inc. (NASDAQ:TMUS) recently announced that it would be expanding a partnership with Walmart that will see the presence of the firm rise significantly across all Walmart retail stores as well as the online presence.
Among the hedge funds being tracked by Insider Monkey, Greenwich-based investment firm Viking Global is a leading shareholder in T-Mobile US, Inc. (NASDAQ:TMUS) with 7.5 million shares worth more than $1 billion.
