Correction Protection: 10 Safe Stocks Worth Buying

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 |  Includes: ABT, ADM, CPB, ENI, GIS, HSY, K, KMB, KMI, KMP, MO, WMT
by: Investment Underground

Looking for correction protection? We ran a screen for low beta (.5 or less), high-yield, large cap stocks that you can use to anchor your portfolio in the event of a correction. If you're interested in keeping money in the market and not moving into cash, these names will mitigate downside risk should we see stocks continue to slide. As always, use the list below as a starting point for your own due diligence.

Archer-Daniels Midland Company (ADM) Income and revenue have jumped nearly a third YoY for ADM with a 5-year EPS projection of a very steady and respectable 8%. The company is heavily involved in ethanol, so investors strongly committed to this play or those simply looking to add a bit of ethanol exposure to their books without direct commodities investments might be attracted to this venerable name. ADM is brilliantly building a storage terminal in a special trade zone in Uruguay.

With access through the Uruguay River, ADM will be able to better marry Brazilian crop production with European and North American markets by sea. Shares trade at 29.90 at the time of writing. Should we see a correction, a name like ADM should hold up relatively well.

Abbott Laboratories (ABT): Develops and manufactures healthcare products on a global scale. Having increased the dividend for 39 straight years, ABT has cemented itself in the top 50 for active dividend increase streaks. The current yield of 3.77% is appetizing, but much more so in light of ABT’s near 10% dividend growth rate over each of the last 5 years. The 62.1% payout ratio is in line and the dividend growth rate has been quite stable hovering around 10% for the 1, 3, 5 and 10 year averages.

Further ABT has slightly increased its dividend payout growth rates as of late. If Abbott can keep it up for the next 10 years it’ll come in with a yield on cost just under 10%; do it for 20 years and it’ll be closer to 25%. Beta stands at .31, and shares trade at $51.40.

Abbott could be an acquirer of one of our potential biotech acquisition candidates.

Campbell Soup (CPB) The soup maker has a current yield of 3.44%, and has paid dividends since 1902. Shares are also up 8.2%, over a 5 year period. Currently, the market cap is a little less than $11 billion. Campbell revised its full-year fiscal 2011 guidance and now expects net sales to be between 1% and -1%, adjusted EBIT to decline between 3% and 5% and EPS to decline between 1% and 3% from the fiscal 2010 adjusted base of $2.47.

Net sales came in at $7.6 billion with an EBT margin of 15.3%, from January 2010 to January 2011. In comparison, Sara Lee (SLE) and Heinz (HNZ) had EBT margins of 5% and 12.6%, respectively. As of October 2010, ROIC was 20.38%, but for its peers above, the ROICs were 17.95% and 13.35% (for the most recent 12 months of operations). Shares trade at $34 a piece at the time of writing.

Kellogg Company (K) In February, UBS upgraded this perennial breakfast favorite to a buy with a target in the vicinity of $60. It’s a fierce competitive landscape, but with solid fundamentals and a steady demand, it really falls to management to captain this ship to increased efficiency and profits. The dividend yield is nothing to sneeze at so, do your due diligence and make your assessments accordingly.

Shares yield 2.95% and there is plenty of cash on the books for dividend growth. Kellogg shares represent a better buy than General Mills or Ralcorp (RAH) at these prices.

General Mills (GIS): For the trailing 12 months, the EBT margin is 15.58%. For 2011, analysts estimate GIS will make $2.48 in non-GAAP EPS (+10.56%) with revenues of $14.9 B (+0.91%). The next earnings release is June 27. For the coming quarter, analysts project that GIS will earn $0.52 in non-GAAP EPS, an increase of 68.66% over Q4 2010, with revenues of $3.7 B, an increase of 2.53%. For 2012, the Street expects non-GAAP EPS to be $2.68 (+8.06%) with revenues of $15.5 B (+4.02%). The company also has a debt to equity ratio of 0.83.

FY 2011 has almost run its course and has produced rather tepid revenue figures with only 1.6% growth in Q3 2011 over Q3 2010. However, FY 2012 holds some promise with improving consumer demand in the U.S. and the international markets, especially in Asia-Pacific and Latin America, according to S&P. Despite rising commodity costs and inflation, the company should benefit from higher prices on its products.

We place a $41 price target, implying a forward 2011 P/E of 16.5. This is reasonable, given more optimism after meeting or beating analyst estimates, and the current P/E is 16.4, using data from the trailing 12 months. By the end of 2012, we expect GIS to be at $45.50, which utilizes a forward 2012 P/E of 17.0, which is similar to FY 2007’s results of 9.66% GAAP EPS growth and 6.89% revenue growth compared to estimated FY 2012’s 8.06% growth in non-GAAP EPS and 4.02% revenue growth. With a current yield of 2.9%, this is a buy for income investors and risk-averse investors.

Kimberly-Clark (KMB): Key in its product arsenal are many disposable healthcare, infant and feminine products that consumers cannot do without. The company sports an ROE of 33.4. In 2009, its ROE was 97.74%. The household products industry average ROE is 25.67%. ROA for KMB in 2010 is 9.27%. The PEG ratio for KMB is 1.6 while the industry average is 1.84. Comparatively, the P/Es for KMB and CL (Colgate-Palmolive) are 14.6 and 18.2 for the trailing 12 months. For the household products industry, the average P/E is 16.1. EPS fell by 1.5% for KMB in 2010, but increased for CL by 17.1% in the first 9 months of 2010. In 2009, CL grew EPS by 19.4%. In 2010, the EBT and profit margins for Kimberly-Clark are 12.9% and 33.17%.

By comparison, Colgate-Palmolive has an EBT margin of 21.9% and profit margin of 59.15% in the first 9 months of 2010. In 2009, the respective figures are 23.08% and 58.77%. The average profit margin for the household products industry is 13.48%. KMB has paid dividends since 1935.

Altria Group (MO): In the tobacco industry, MO engages in the manufacture and sale of cigarettes as well as smokeless tobacco and wine. It owns the company brand portfolios that consist of successful and well-known brand names like Marlboro (the largest cigarette company in the U.S.), Copenhagen, Skoal and Black & Mild. Despite government attempts to advocate against smoking cigarettes, MO still had revenue of over $24 billion last year. After years of lawsuits, taxation and general disdain, this "sin" stock has consistently been able to make considerable gains.

MO appears to be bullet-proof in that, even with all the money in the world being thrown at negative advertising for cigarettes, a good chunk of those funds will end up back in the pockets of the tobacco companies. As a stock, MO has solid prospects going forward. While its 52-week high was recently 28.12, its P/E is only 14 and forward P/E is 12.72. With a decent PEG ratio of 1.72, a wildly impressive ROE of 82, and ROI of 13.53%, this stock may even be undervalued and overlooked by the market. We like this stock as a buy, as it should be able to continue its steady upward trend to higher per share value.

Further, dividend payouts and yield come out to an impressive $1.52 and 5.6%, respectively. Although the payout ratio is a little high at 79% a company with as much cash flow as MO should have no problem sustaining high dividends.

WalMart (WMT): While Wal-Mart is currently faced with the possibilities of higher labor costs and deflation in large categories, it is still the largest player in the game, and the firm's reputation as a general retailer allows it to easily shift product to meet consumer demand. International prospects also look good as the company continues to build momentum in key markets such as Mexico, China and Brazil. Ultimately, consumer performance will dictate the company's success.

Currently trading for around $52.71, WMT is below our fair value of $60. Shares yield 2.77%. We think there is plenty of room for Wal-Mart to grow its dividend given the nearly $10B on its books.

Target (NYSE:TGT) continues to nip at WMT's heels; however, we think there is plenty of room for both retailers to grow.

Eni (ENI) Eni is one of the most important integrated energy companies in the world, operating in the oil and gas, electricity generation and sale, petrochemicals, oilfield services construction and engineering industries. In these businesses it has a strong edge and leading international market position. Eni is active in 79 countries with a staff of 79,900 employees. Beta stands at .49 and shares trade for $21 apiece.

We think ENI's prospects are bright. ENI has a modest payout ratio of 20%, and has $2.15B in cash and enough cash flow to fuel dividend growth over the next few years.

Hershey Co. (HSY): Ironically, Hershey's CEO of the past three years, David West, left the company recently to take the top job at Del Monte Foods (DMF) in California. Hershey is the largest producer of quality chocolate in North America and a global leader in chocolate and sugar manufacturing. Its factory in Hershey, PA, is over 2,000,000 square feet, and is the largest chocolate factory in the world. The company recently raised wholesale prices by 9.7% on most of its candy products, reflecting increased costs for raw materials, fuel, utilities and transportation. In a competitive industry, this may end up hurting HSY. However its brand name could make up for the difference. HSY has a reasonable P/E of 23.75.

HSY does provide a nice dividend yield of 2.56% while trading at $54.76. For dividend lovers, HSY is a stock to consider given its giant market cap of $12.16 billion.

Kinder Morgan Energy (KMP) currently yields 6.25%.The 52 week trading range is $59.34 - $77.85, and KMP currently trades at $72.79. Kinder Morgan (KMI) owns the general partner interest of Kinder Morgan Energy Partners, one of the largest publicly traded pipeline limited partnerships in the US. Combined, the companies have an enterprise value of approximately $55 billion. KMP shares trade comfortably above our fair value estimate, and we place an $85 price target. We believe that the company has strong growth prospect in servicing natural gas production and different shale plays.

The strong interest in pipeline MLPs over the last year has driven prices beyond fair values for most MLPs. We recommend looking at E&Ps instead, which offer more value. T. Boone Pickens tends to agree with this theme.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.