The gut-wrenching drop back in August, when the Dow opened down 1,000 points and the indexes went through the first 10% correction in almost four years was, needless to say, an eye-opener for investors. If one looks at similar sell-offs over the past 20 years, a pattern appears: a sharp drop down, a 50% or so retracement and then a final drop to retest the initial lows.
With history as a guide, and the Federal Reserve keeping interest rates low, we thought it smart to look for the stocks that are the safest variety for investors in ultra-volatile markets. Selling everything and waiting for the turn rarely works, but rotating into safer companies is a good strategy.
We screened the Merrill Lynch research universe for safe stocks that are rated Buy and found four that make the grade.
This company has become the ultimate destination for the American consumer regardless of the economy. Costco Wholesale Corp. (NASDAQ: COST) has a unique business model. It operates membership warehouses, where the company buys the majority of its merchandise directly from manufacturers, essentially cutting out the middleman. Costco sells in bulk but also at a lower price, thus fueling its rapid growth. With consumers having more free cash to spend as gasoline prices have dropped, this major retailer may continue to see large revenue gains.
Costco remains one of the few conventional retailers with metrics like store traffic, market share gains and a validated model that could bode well in international growth and expansion. The company is largely unharmed by e-commerce and continues to add stores at strategically mapped out locations.
Costco investors are paid a small 1.11% dividend. The Merrill Lynch price target for the stock is $165, and the Thomson/First Call consensus target is $155.30. Shares closed Thursday at $143.35.