Investing in 2022 is like opening the box of an IKEA piece of furniture: the instruction manual has no words and you have to guess what to do next thanks to the images provided. Since the start of the year, all three major indexes have plunged into a bear market, and a number of metrics and indicators suggest that the market as a whole could go down further.
While not exactly a rosy forecast, it does represent an incredible opportunity. No matter how poorly major stock indices have performed throughout history, steep declines have always been offset by bull market rebounds. This means that the current bear market is the perfect time to put silver to work.
However, investors don’t have to buy volatile stocks to build wealth on Wall Street. There are a number of relatively safe stocks that have weathered downturns before and offer reasonable long-term growth potential without the violent price swings typically associated with high-growth stocks. The following are three exceptionally low-risk stocks that have the ability to turn an initial investment of $400,000 into $1 million, including dividends paid, by 2030.
Walgreen Boot Alliance
The first safe bet that offers low volatility and the potential to generate a total return, including dividends paid, of 150% by 2030 is the drugstore chain Walgreens Boot Alliance (NASDAQ: WBA).
Are things looking good for Walgreens right now? No. A slowdown in COVID-19 vaccinations has slightly slowed foot traffic in its stores. Perhaps more pressing, a stronger US dollar threatens to weigh on its potential for gains in foreign markets.
This makes some people on Wall Street wary of putting money to work in this drugstore giant. However, this is a narrow view for a company that is making all the right choices.
For years, Walgreens has embarked on a transformation aimed at making the business more efficient, driving organic growth and building customer loyalty. The initial report card for this conversion should result in an “A” grade.
In terms of operational efficiency, Walgreens has set a goal to reduce its annual operating expenses by $2 billion by the end of fiscal year 2022 (the company’s fiscal year ends August 31). ). Walgreens surpassed $2 billion in annual savings and successfully hit its goal one year ahead of schedule (fiscal 2021).
Of course, cutting costs only moves margins and the profit needle so far. What is much more attractive is where the company has deployed its capital. For example, it has increased its presence in online retail in the wake of the pandemic. Despite being a brick-and-mortar-dominated retail chain, Walgreens is experiencing sustained double-digit digital sales growth.
Additionally, Walgreens has partnered with and made a majority investment in VillageMD to open up to 1,000 full-service health clinics by 2027. They will be co-located in Walgreens stores in more than 30 U.S. markets.
At the end of August, 152 of these clinics were already open. Having a physician on staff broadens the treatment landscape of these clinics and provides an impetus for repeat visits.
One final note: Walgreens is distributing a 5.4% yield and has increased its base annual payment for 47 consecutive years. Valued at just seven times its fiscal 2022 earnings, Walgreens Boots Alliance appears to offer a very safe floor and a reasonably high ceiling.
Exceptionally low-risk stocks don’t have to be well-known to deliver triple-digit total returns. Water utility stock completely off the radar York Water (NASDAQ:YORW) is the perfect example of a safe bet that can make its shareholders much richer by 2030.
Even for the most diehard utility investors, York Water is probably a name few have heard of before. It is a small-cap company ($603 million market cap) that trades an average of around 63,000 shares per day. Specifically, it operates water and wastewater utilities in 51 municipalities spanning three counties in south-central Pennsylvania. But what York may lack in publicity it more than makes up for in its return of capital program, which I’ll get to in a moment.
The beauty of water utility stocks like York Water is that their operating cash flow is very predictable. For starters, landlords and tenants have little, if any, choice when it comes to choosing their water and wastewater service provider.
To follow up on this point, York is a regulated water utility. This means that the company cannot pass on rate increases without receiving approval from the Pennsylvania Public Utility Commission.
Although this may seem more complicated than beneficial, it is quite the opposite. With rates known in advance, York avoids exposure to potentially unpredictable wholesale prices. This predictability plays a key role in York setting aside capital for acquisitions and its dividend without having to worry about the negative impact of these expenses on earnings.
But the real star of York Water has been its dividend. Earlier this year, I called York “the greatest dividend-paying stock of all time” because no publicly traded company has paid a consecutive dividend for a longer period – 206 years (and counting).
While its 1.8% yield may be a bit pedestrian among utility stocks, the compounded annual total return of its stock plus dividend since 1999 would put investors on track for a 150% gain on an investment. initial $400,000 by 2030 (assuming its average returns for the past 23 years hold for another eight years).
The third exceptionally low-risk stock that can turn an initial investment of $400,000 into $1 million by 2030 is semiconductors. Intel (NASDAQ: INTC).
Naturally, a cursory glance at Intel’s stock chart on a yearly basis might make investors feel anything but “safe.” The combination of historically high inflation, ongoing global supply chain issues, a strengthening US dollar, growing fears of a recession and market share gains by the main rival Advanced micro-systems pushed Intel shares to their lowest point in more than eight years. While cyclical stocks like Intel won’t bounce back in a snap, they can offer competitive advantages and predictability that make them solid buys.
For example, on a macro basis, semiconductor stocks look poised to benefit from certain commodities and industries becoming more technology-focused. Everything from our home appliances to cars increasingly depends on semiconductor solutions. This provides a steady growth opportunity for what often amounts to multi-year economic expansions.
More specific to Intel, its data center segment is expected to become a cash cow this decade. Although Intel is best known for its personal computing (PC) processors, it’s the constant movement of enterprise data to the cloud that is expected to drive data center demand for years to come. Even with modest market share losses to AMD, Intel still holds the bulk of the PC, server and mobile CPU market share.
The CHIPS and Science Act, which President Joe Biden signed into law in August, presents another opportunity for Intel to get things done. Intel is spending $20 billion to bolster its foundry business and build two manufacturing plants in Ohio. The company could leverage subsidies given to the semiconductor industry through the CHIPS Act to build additional facilities in the United States.
At no time in Intel’s storied history has the company been valued so cheaply relative to its book value. When you add its 5.4% dividend yield, you have an extremely safe tech stock with what should be a solid floor below its current price.
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Sean Williams holds positions at Intel and Walgreens Boots Alliance. The Motley Fool holds positions and recommends Advanced Micro Devices and Intel. The Motley Fool recommends the following options: January 2023 Long Calls at $57.50 on Intel, January 2025 Long Calls at $45 on Intel, January 2023 Short Calls at $57.50 on Intel, and January 2025 Short Calls at $45 on Intel. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.