Investing is an inherently risky activity. It can take years for a bullish thesis to play out, and in that time, competitive dynamics can drastically change, or an industry could hit an unexpected downturn. Shareholders expose themselves to these -- and many more -- risks when they buy a stock in hopes of generating a positive return in the future.
Some companies are less risky than others, though, whether it's by virtue of their dominant market positions, steady earnings streams, or valuable brands. Below, we'll look at a few of these low-maintenance stocks.
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Procter & Gamble
Procter & Gamble (NYSE: PG) is one of the leading companies in the consumer staples industry. The niche is called "staples" to differentiate it from more "discretionary" consumer categories, like entertainment and electronics, that tend to swing with shifting economic trends. In contrast, shopper demand for products like diapers, paper towels, and laundry detergent holds up well even through market disruptions.
That fact helps explain why P&G has one of the stock market's longest-running dividend growth streaks, with more than 60 years of annual hikes under its belt. Yes, the stock has underperformed the market over the last few years as its growth rate stalled. But investors know that with a P&G purchase, they don't have to worry about collapsing sales or profitability. Instead, the maker of Tide detergent and Gillette razors is likely to continue pairing modest sales growth with market-thumping profitability. And those trends should support healthy, if underwhelming, returns over time.
The retailing industry is going through major changes right now as shoppers increasingly opt for home delivery over a trip to their local clothing store or supermarket. That shift is hurting the profitability outlook for many companies, who now have to spend heavily to compete in lower-margin e-commerce sales.
Bulk-shopping giant Costco (NASDAQ: COST), on the other hand, is having no trouble expanding. The retailer's same-store sales are up 7% over the last 48 weeks, while rivals like Walmart and Target are growing at closer to a 2% pace. Its profitability is holding steady, too, thanks to its rising subscription fee income, while peers are seeing their margins slip.
Low-risk investors will love the fact that most of Costco's earnings come from its membership fees rather than volatile sales markups. And with more than 90% of its subscribers renewing each year, there's every reason to expect continued steady growth ahead.
Berkshire Hathaway (NYSE: BRK-A) is a massive business that benefits from significant exposure to low-risk areas like utilities and consumer products. CEO Warren Buffett's biggest stock investments, meanwhile, include blue-chip companies such as Apple, Coca-Cola, and American Express.
This operating setup, combined with Berkshire's massive cash hoard, tends to protect shareholders somewhat during market downturns. The stock saw its book value drop by 32% during 2008 when the broader stock market fell 37%.
The long-term performance of the business is the bigger reason to like this stock, though. Since 1965, it has compounded returns at an annual gain of 21%, or a full 11 percentage points above the S&P 500.
Of course, Berkshire is much larger today, so it isn't likely to outperform indexes by nearly that much going forward. Yet its diverse collection of profitable businesses should still deliver steady returns along with the occasional "wow" result. That's the type of outlook that can help a risk-averse investor sleep well at night.
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Demitrios Kalogeropoulos owns shares of Apple and Costco Wholesale. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.