Four ‘Sleep Well at Night’ Stocks

The current bull market — the second-longest on record — for the S&P 500 will reach eight years in length on March 9, 2017.

It’s gained a massive +310% during its 95-month bull run …

Source: YCHARTS

Many of you may be wondering when the next bear market will rear its ugly head …

We’ve suffered through eight bear markets over the last 50 years (1967-2016).

I can’t say when the next one will begin. And please don’t believe anyone else who tells you they can. They don’t have a crystal ball and neither do I.

But, I can say we’ll eventually see another bear market. And as each month, quarter and year goes by, we get closer to the ninth one.

To protect yourself from the next surprise bear market, here are seven common-sense tips that can help:

1. Tune out short-term forecasts.

2. Avoid toxic investor behavior.

3. Use systematic investing.

4. Keep a well-diversified portfolio.

5. Stick to your investment plan.

6. Do your own portfolio stress test.

7. Use protective tools for added safety.

Related story: 7 Tips to Survive the Next Bear Market

For individual stocks in your equity bucket, you may want to consider taking some extra precautions.

For example, in 2008 when the financial system collapsed, the S&P 500 fell -37%.

Plenty of famous blue-chip stocks took it on the chin. Here is a small sample of 10 that fared worse than the S&P 500 that year:

  Ford Motor (F) … -66%

  Deere (DE) … -58%

  Apple (AAPL) … -57%

  Schlumberger (SLB) … -56%

  Alphabet (GOOGL) … -56%

  UnitedHealth Group (UNH) … -54%

  Boeing (BA) … -49%

  Merck (MRK) … -45%

  Honeywell International (HON) … -45%

  Microsoft (MSFT) … -44%

You’ll notice the above list doesn’t include any financial stocks. But you no doubt remember the angst if you had “banked on” banking stocks. In 2008, the Financial Select Sector SPDR ETF (XLF) declined -55%.

In 2008, 95% of S&P stocks had negative returns. The 25 stocks (5%) that actually made their shareholders money in 2008 are the types of stocks you want to own when the next bear market comes.

With this in mind, I revisited a screen a Morningstar colleague ran for me a couple years ago. Back in 2014, I’d called up one of my contacts there and asked him to run a special stock screen. He has access to extensive data you can’t get from run-of-the-mill financial websites.

With over 19,000 stocks in Morningstar’s database, I asked him to eliminate stocks that lost 10% or more in any calendar year over the last decade. (At the time, those 10 years were 2004-2013).

Basically, I wanted a list of “safe” stocks. Steady winners that powered through any correction or bear market.

He sent me a file with 101 stocks that qualified. Only 0.5% of stocks passed my test.

As I studied the list and numbers, I noticed an error in my screening methodology that was unaccounted for … a company that was down 9% each of the last 10 years would — technically — have made it through my screen.

This didn’t happen. But, there were numerous stocks with more than one “red” calendar year. That’s not what I was looking for.

I wanted stocks that went up when the market was up and rarely, if ever, posted a losing year of any amount.

Upon further examination, I realized a small handful of stocks had made it through all 10 calendar years without a losing year.

A “sleep well at night” list, if you will.

Only six of the 101 stocks made the cut after further analysis.

Six out of 19,000-plus stocks (0.03%)!

Recently, I added on the last three years — 2014, 2015 and 2016 — to this narrowed-down screen. (Obviously, no stock that had been kicked out before could make it back on to my query.)

And here are the updated numbers …

The original 101 stocks contracted to 70 stocks. (Stocks that didn’t lose more than 10% or more in any calendar year over the last 13 years.) The 31 stocks that didn’t make my latest cut had at least one double-digit percentage loss in the last three years.

And my “sleep well at night” list of stocks shrunk from six to four stocks. (No down years over the last 13 years.)

Those four stocks are AutoZone (AZO), Chesapeake Utilities (CPK), General Mills (GIS) and Waste Connections (WCN). Here are their returns over the last 13 calendar years …

If the last 10 years is any guide, these four stocks should perform just fine during the next market correction or bear market.

And if they do fall, chances are, they will fall less than almost any other stock.

Best
Grant Wasylik

P.S. If forced to select one of the four stocks for the long haul, I’d go with auto-parts retailer AutoZone (AZO). It’s off about -7% already this year (history says it should make a comeback) … it’s doesn’t look expensive on a P/E basis (AZO: 17.7, S&P 500: 20.6, Specialty Retail Industry: 37.1) … and it’s a buyback machine (repurchasing more than $1 billion of its shares each of the last eight years).

Originally from Pennsylvania, Grant graduated from Juniata College with an economics major and accounting minor. Since graduation, Grant has worked in the investment industry for almost two decades by serving in various roles … Prior to coming to…