Top 3 Safe Stocks in the Current Market

Since February, the S&P 500 has shed some 8% in value. 

True, that kind of dip off of an all-time high (ATH) does not a recession make, but with critical supply chains at risk, resurgent inflation being a real possibility, and the odds of long-awaited rate cuts finally happening slipping by, it’s no wonder the benchmark index is in the red. 

To make matters worse, the stock market is at a record level in terms of concentration, with the Mag 7 accounting for roughly 30% of its total value. All of those stocks are also in the red on a year-to-date (YTD) basis — every single one.

The most sensible thing to do now is to focus on defensive picks. 

You’ve probably heard this a million times before — stable revenues from non-discretionary spending — healthcare, utilities, consumer staples. 

That’s sound advice — but anyone who’s lived through even a single recession could tell you that. We’re not knocking that approach, but it’s rather broad and unfocused.

Narrow Your Search: What to Look For

This is where leveraging cold, hard data can be the difference maker. Finding your footing and doing the legwork in terms of research — this doesn’t have to be particularly time-consuming or mentally taxing, either, provided that you know where to look and how to utilize the proper tools.

By now, you’re probably acquainted with our Zen Ratings system. It’s a proprietary quant model that takes 115 factors proven to correlate with outsized returns, divided into 7 categories, into account, to provide an overall rating.

The highest possible rating — A, is only given to the top 5% of stocks. Equities of that class provide an average annual return of 32.52%, when looking at data stretching back to the early 2000s. That A rating is also a good place to start, and it will be our first criterion.

Of course, that average return, on that timeframe, can also mean smaller drawdowns or losses in downturns. We’ll make sure to hone in on stocks with the highest possible Safety Component Grade rating. 

Beyond serving as a measure of stock price stability over time, it also takes into account the consistency of a company’s revenue flow, as well as fluctuations in analyst predictions, which give a clue as to how predictable a business’s earnings have been thus far. We’ll also be looking for equities that are ranked A in this regard.

Screen Twice, Execute Once…

Let’s get down to business. We’ll start with our Most Safe Stocks to Invest in & Buy screener. 

By default, it lists roughly 450 stocks, so we’ll tweak the settings. We’ll apply the following criteria:

• Zen Rating of A (No B’s)
• Safety Rating of A
• Coverage from at least 3 top analysts

With those settings in place, the screener produces a grand total of….4 stocks. That’s a bit more manageable. Since one of them was covered by my colleague a couple of days ago, we’ll cover the rest here.

1. Merck & Co Inc (NYSE: MRK)

Healthcare powerhouse Merck (NYSE: MRK) maintains a robust offering of antiviral, oncology, and diabetes treatments, as well as key vaccines like Gardasil and even animal health products.

Lower guidance in the company’s Q4 earnings drove the price of MRK shares down 12.20% YTD, but Wall Street maintains a bullish outlook. At present, the average 12-month price forecast for Merck stock sits at $117.92, implying a 31.38% upside from the current price of $89.76.

As outlined, MRK stock meets all 3 of our criteria. It carries an overall Zen Rating of A. In terms of Value and Safety, it ranks in the 99th and 95th percentiles, respectively.  

In addition, Merck also ranks in the top 8% in terms of Financials, and the top 10% in terms of Sentiment, indicating both a healthy balance sheet as well as plenty of positive coverage.

Let’s dive into the specific metrics a little more — at a price-to-earnings (P/E) of just 13.28x, MRK is quite cheap relative to the wider market. But that doesn’t necessarily come at the expense of growth — as the price-to-earnings growth (PEG) ratio stands at an enticing 0.76x. 

Despite recent challenges, the company has increased profit margins in the last year and has significantly outpaced the earnings growth of industry peers and competitors in the past five years.

2. Hackett Group Inc (NASDAQ: HCKT)

Our next pick for today is a small-cap consulting firm out of Miami, Florida. Back on February 18, the business held its Q4 2024 earnings call. This marked the eight consecutive occasion on which both earnings per share (EPS) and revenues came in above analyst estimates.

Hackett Group (NASDAQ: HCKT) shares are currently trading at $29.04, down roughly 4.11% YTD, having marked a slightly smaller drop than the wider market has. However, Wall Street remains optimistic, as analysts project an average upside of 11.8%. Quite notably, all 3 analysts who cover the stock issue either Buy or Srong Buy ratings.

Hackett Group stock carries an overall Zen Rating of A, and on the whole, ranks in the top 4% of the more than 4,600 stocks that we track. However, that does little to illustrate why — for that, we’ll have to take a closer look at its Component Grade ratings. Here, we find a rare sight — three categories with the highest possible rating.

In terms of Safety, HCKT shares rank in the top 5% of equities. In addition, it ranks slightly higher in terms of Sentiment — in the 96th percentile, to be exact.

However, Financials is Hackett Group stock’s strongest suit — as it ranks in the top 1% in this category.

Despite the recent dip, the business has demonstrated a history of outperformance. While the average price target implies a relatively modest upside, Hackett Group is also forecast to generate twice the return on assets (22.59%) compared to industry peers (11.03%).

3. KBR Inc (NYSE: KBR)

The last entry on our list is a major player in engineering, which has a long history of securing lucrative government contracts from the likes of NASA and the U.S. Department of Defense.

At the moment, 6 Wall Street equity researchers track KBR Inc (NYSE: KBR) stock and issue ratings for it. It’s a consensus Strong Buy, boasting 5 Strong Buy ratings and a single Hold rating. The average price target, at $72.17, implies a hefty 44.88% upside. 

Stocks with a Zen Rating of A, like KBR, have provided an average annual return of 32.52% since the turn of the millennium. Let’s take a closer look at why Wall Street thinks that the company can outperform even those high expectations.

In terms of Sentiment, KBR ranks in the 89th percentile, which comes as little wonder, seeing as how the company has outperformed EPS expectations for a staggering 15 quarters in a row.

Just like our previous entry, KBR Inc’s Component Grade ratings also provide a rare sight, but of a different kind. The stock scores highly in both Value and Growth — to be exact, in the top 7% and 12%, respectively, of the more than 4,600 stocks we track.

So, what about Safety? In that area, the business ranks in the top 2% of equities. From Q2 2020 up to recently, KBR stock has been in a pretty strong uptrend. Since the start of the year, prices have dropped by 14.01% — but with such strong revenue and earnings forecasts, not to mention the ambitious price targets set by Wall Street experts, we’re not sure that this is anything other than a temporary dip.

—> Our Most Safe Stocks to Invest in & Buy screener was used to determine this issue’s stock picks. If you’re looking for handy presets that can help you narrow down your search, check out our Stock Ideas list

What to Do Next?

• 8 Stock Lists You Need Now >
• See All “A” Rated Stocks with +32.52% Average Annual Return > 
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