After the longest stretch in the history of the market without a 5% correction, a stretch that continues despite the recent selling, giddy investors are probably a little bit less celebratory. The good news is that fundamentally, despite higher valuations, the market is set up pretty well for 2018 as earnings and the tax reform package are serious tailwinds.
The knowledge that interest rate hikes are coming is no secret, and the bottom line is the market could use a 5% or even larger sell-off to allow the indexes to push higher later this year. With the option of going to all-cash an expensive one, and fully hedging a portfolio also costly, it may make sense to shift from higher beta stocks to safe plays that tend to do well when the going gets tough.
We screened the Merrill Lynch research universe database for stocks rated Buy, pay a dividend, and have the firm’s lowest volatility rating. We found five that would be great moves for nervous investors now.
American Electric Power
This industry leader is a solid dividend payer and remains a top utility pick in the Merrill Lynch US 1 list. American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.3 million customers in 11 states.
The company ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.
American Electric Power shareholders are paid a solid 3.63% dividend. The Merrill Lynch price objective for the shares is $75, and the Wall Street consensus target price is $74.07. The stock closed trading on Tuesday at $68.35 a share.
This company remains a top Wall Street energy pick. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.
The company also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.
For 75 years in a row, Exxon has raised its dividend on a split-adjusted basis. Thanks to the company’s vertically integrated model in the oil and gas business, its profitability doesn’t suffer through commodity price swings like a company that’s a pure play in one segment of the value chain.
Shareholders are paid a nifty 3.55% dividend. Merrill Lynch has a $102 price objective for the stock, while the consensus price target is much lower at $88.95. The stock closed most recently at $86.78 per share.