There's never been a better time to invest in "safety stocks."
The Dow Jones Industrial Average is down 14% since July 22 and the Standard Poor's 500 Index is down 15% in that time. The U.S. economy is grinding to a halt, and a double-dip recession could be in the offing. Meanwhile, the U.S. Federal Reserve continues to undermine the dollar with expansive monetary policy.
Indeed, with so much bad news and chaos, there's never been a better time to stock up on the essentials – gold, guns, and cheap food. These are the things people turn to when the going gets tough – and the companies that provide these bare necessities shine the brightest when everything else seems to be falling apart.
That said, here are three safety stocks that are worth a look:
- Newmont Mining Corp. (NYSE: NEM).
- McDonald's Corp. (NYSE: MCD).
- And Sturm, Ruger & Co. Inc. (NYSE: RGR).
Let's examine each in a little more detail.
Newmont Mining Corp.
Gold has been the can't-miss profit play of the past three years.
The yellow metal settled at yet another record high yesterday (Tuesday), surging 1.7% to $1,743.00 an ounce on the Comex division of the New York Mercantile Exchange (NYMEX). And Money Morning Contributing Editor and global resources specialist Peter Krauth says it could more than double from there.
"I expect gold to reach $5,000 before this bull market peaks," said Krauth. "I'm very open to the possibility that gold could correct from here, but I'd expect that to be nothing more than a short-term pullback."
Indeed, developed nations' debt problems remain unresolved and the Fed's monetary policy continues to weaken the dollar, making the outlook for gold very bright.
That's good news for Newmont Mining Corp., which has 93.5 million ounces of proven and probable gold reserves. The company generated nearly $10 billion in revenue and gross profit of $6 billion in its trailing 12 months.
Newmont's stock price does not yet reflect its true value, as the company has a Price/Earnings (P/E) ratio of just 11.27. But what's even better is that Newmont is pegging its dividend payout to the price of gold.
For instance, gold settled last Friday at $1,659 an ounce, leaving the dividend at 30 cents a share. But at Monday's record high price of $1,718 an ounce, the dividend jumped to 35 cents a share. The stock currently yields about 2.2%, but you can expect that to rise, and rise quickly, as the price of gold continues to soar.
McDonald's Corp. is the quintessential "recession-proof" stock. It's a huge company that's very active globally. It's made a big splash in fast-growing emerging markets – particularly in Asia – and hard economic times make its affordable menu even more appealing.
The company's same-store sales increased 5.1% in July. Sales were up 5.3% in Europe, 4% in Asia, and 4.4% in the United States.
McDonald's reported a second-quarter profit of $1.41 billion, or $1.35 a share, up from $1.23 billion, or $1.13 a share, a year earlier. Revenue jumped 16% to $6.91 billion.
A strong global brand, low prices, and growing revenue were enough to land McDonald's on Goldman Sachs Group Inc.'s (NYSE: GS) prestigious "Conviction Buy" list. The firm set a $96 price target on MCD, which suggests an 11% upside to the stock's Monday closing price of $82.11.
Goldman noted it sees a total potential return of 20% for the stock when including its dividend.
McDonald's stock is up 10.5% year-to-date, compared to a nearly 10% decline for the S&P 500.
Sturm, Ruger & Co. Inc.
Finally, there's Sturm, Ruger & Co. – the firearms manufacturer that's blowing away the competition.
Sturm Ruger's net income rose 32% to $10.8 million, or 57 cents per share in the second quarter. The company also is raising its dividend and buying back shares – two hallmarks of a good company.
Ruger has raised its dividend twice lately — most recently when the company announced earnings on July 27, 2011. The new dividend rate is now 56.8 cents per share on an annualized basis. This brings the current yield to about 2.3%.
Meanwhile, the company bought back 133,400 of its 18.9 million outstanding shares in the first half of 2011. Those purchases absorbed $2 million; another $8 million in authorized purchases remain.
Ruger's large cash stockpile made all of this possible. The company had cash and equivalents and short-term investments of $76.5 million as of July 2.
The stock is up nearly 77% in the past year, compared to the S&P 500, which is flat.
News and Related Story Links:
- Money Morning:
Sturm, Ruger & Co. Inc. (NYSE: RGR) Hitting the Bull's-Eye
- Money Morning:
Preserve Your Wealth with these Large-Cap Dividend Stocks
- Money Morning:
Time to Profit, Not Panic, from the Stock-Market Sell-Off