While the Federal Reserve aggressively raised the benchmark interest rate to tame historically high inflation, much evidence indicates that the central bank hasn’t done enough, thus bolstering the case for safe stocks for investing during disinflation. Fundamentally, the Fed’s goal will be to facilitate a gentle deceleration of prices without sparking a recession.
However, the initiative will be easier said than done. While the latest jobs report came in below economists’ expectations, the unemployment rate declined while wage growth month-to-month stabilized at a robust pace. Plus, with the average work week increasing, the Federal Reserve impact may cynically benefit defensive stocks.
As I discussed in my interview with CGTN America anchor Phillip Yin, the central bank is on the right track but it needs to rein in a culture of big government accommodation. That’s going to be painful and it could lead to a recession. Therefore, you may be better off following stock market trends with these safe and boring ideas.
Fundamentally, the narrative for Colgate (NYSE:CL) representing one of the safe stocks for investing during disinflation centers on everyday demand. Almost certainly, people will brush their teeth every day, irrespective of market conditions. Not only that, Colgate’s oral health products help consumers conduct do-it-yourself healthcare.
Now, let me be 100% clear: I’m in no way making any kind of advice, neither dental nor financial nor anything really. However, The Washington Post mentioned that many folks struggled with returning to the dentist’s office following the Covid-19 quarantines. Should an economic crisis hit, it’s not unreasonable to assume households will stock up on Colgate products and save money on their dental trips.
Financially, Colgate isn’t particularly remarkable. But based on the upcoming Federal Reserve impact, investors should take confidence in the company’s consistent profitability. Also, as investment data aggregator Gurufocus points out, Colgate’s trailing year net margin clocks in at 8.71%, better than 77.72% of its peers.
Ordinarily, Costco (NASDAQ:COST) makes a strong fundamental case for rising inflation. After all, the membership-only big-box retailer incentivizes bulk purchases. However, I believe it also makes a strong case for stock market trends associated with disinflation or even outright deflation. How so? Well, the company is simply much more resilient (based on its core user base) than other retailers.
I don’t want to get into all the consumer demographic details between Costco and its competitors. But just do the research yourself, starting with this Business Insider article. The same resource also conducts research on Costco’s rivals. And you can easily come away with the reality that Costco shoppers are younger, wealthier, and probably more educated.
Again, I’m not trying to stir up big-box rivalries ala Yankees versus Red Sox. However, when faced with selecting defensive stocks that are more appropriate for investing during disinflation, you’re going to want to align with the more resilient ideas.
As a pharmaceutical giant, Merck (NYSE:MRK) makes an excellent case for safe stocks to buy for investing during disinflation. When it comes to healthcare, the sector offers a robust defensive framework because of critical needs. Should you face medical-related problems, you’re going to get professional help, recession, or no recession.
Also, Merck’s Keytruda – a humanized antibody used in cancer immunotherapy – represents not only the company’s top product but also one of the best-selling drugs in the world, according to Statista. Keytruda generated nearly $21 billion in sales last year. Based on data from McKinsey & Company, global oncology therapeutics sales are forecasted to hit $250 billion by 2024. Thus, MRK enjoys a massive total addressable market.
Financially, the company unsurprisingly benefits from consistently robust long-term revenue and EBITDA growth. As well, it benefits from consistent profitability year in, and year out. Its net margin stands at 22.52%, above 91.22% of the competition. Thus, it’s a great idea for defensive stocks amid the tides of disinflation.
There are safe stocks and then there is Progressive (NYSE:PGR). From an outright financial perspective, I wouldn’t necessarily classify PGR as “safe.” Without context, some might argue Progressive is rather risky, particularly with its less-robust balance sheet. Also, let’s face the harsh reality of the company’s soft second-quarter earnings report. On the day of the disclosure, shares fell more than 13%. Ouch.
Notably, Progressive stated that “…it experienced unfavorable prior accident years reserve development of $137.8 million tied mostly to increases from actuarial reserve reviews in its personal auto products.” In the short term, PGR seems rough. However, against a longer-term framework, the company benefits from a captive audience.
Most states in the U.S. require auto insurance. And among the very few that let the issue slide, it’s just stupid not to have coverage. However, you may have noticed that folks have become nuts since the pandemic. Based on real reporting, it’s not just your anecdotal observations: roadways are becoming more dangerous. Thus, Progressive just makes a lot of sense ahead of the possible Federal Reserve impact.
Waste Management (WM)
One of the “cheat codes” in the market, if you’re facing any kind of market ambiguity but want to stay in the equities space, go with Waste Management (NYSE:WM). Let’s just start with its massive, unparalleled moat. As a provider of the namesake service, only a few enterprises have the capability of offering it. Go ahead and try to get a permit for a landfill and see how far you get.
Just as critically, Waste Management benefits simultaneously from a natural monopoly and a captive audience. First, enterprises just can’t wake up one day and compete with WM. Second, no matter how advanced we become as a society, we will always produce rubbish. Indeed, it’s quite possible that because of innovations such as e-commerce, folks collectively are producing more trash.
Of course, that trash has to go somewhere. It’s a dirty job but because of it, it’s also essentially recession-proof. Sure, with a forward earnings premium of nearly 28 times, I’m not going to say WM is cheap. However, with its robust sales growth and consistent profitability, it’s one of the top defensive stocks to buy.
ABM Industries (ABM)
Billed as a facility management provider, ABM Industries (NYSE:ABM) originally was founded in 1909 as a single-person window-washing business. Today, the company offers various solutions, including facilities engineering, parking, and transportation, electrical and janitorial services, among many others. Of course, one of the main challenges for ABM being one of the safe stocks to buy centers on the work-from-home narrative.
With remote operations becoming so popular, commercial real estate faces a reckoning, imposing a cloud over ABM. However, investors should consider two factors. First, the issue of time theft has become a major conflict source for employers. Second, the disinflationary ambiance of the potential Federal Reserve impact swings the power pendulum back to hiring companies. In my view, working from home will soon come to an end.
If so, such a circumstance would make ABM a viable idea regarding upcoming stock market trends. On a more objective note, ABM trades at a forward multiple of 11.1x. This contrasts with the sector median of 15x.
DTE Energy (DTE)
Based in Detroit, Michigan, DTE Energy (NYSE:DTE) is a diversified energy company involved in the development and management of energy-related businesses and services nationwide. Per its corporate profile, DTE’s operating units include an electric company serving 2.2 million customers in Southeast Michigan and a natural gas company serving 1.3 million customers in Michigan.
Fundamentally, DTE represents one of the safe stocks to buy ahead of possible disinflation because utilities carry natural monopolies. Because of the steep barrier to entry, would-be competitors don’t even try. As well, DTE also benefits from a captive audience. Again, even if a recession materializes, people have to do whatever it takes to pay their utility bills. Not doing so is basically like giving up.
Financially, investors must exercise patience with DTE as utilities don’t exactly print the most sterling financial metrics. For example, DTE’s balance sheet stability could use some work. However, the company prints a strong revenue growth rate. And as you might expect, the utility is consistently profitable.
On the date of publication, Josh Enomoto 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.