Safe Haven Stocks: Trading Options for Volatile Markets

Navigating Safe Haven Stocks

Safe haven stocks, also known as defensive or non-cyclical stocks, are those expected to maintain or increase in value during market turbulence, offering a low-risk option during economic uncertainty.

Understanding Cyclical vs Non-cyclical Stocks:

Cyclical stocks are highly correlated with the economic climate, experiencing price declines during market slumps and revenue growth in flourishing economies. Examples include automotive and airline companies like Bayerische Motoren Werke AG (BMW) and Boeing Co.

Non-cyclical (safe haven) stocks, on the other hand, provide consistent returns regardless of market conditions. These stocks, falling under utilities, consumer staples, and healthcare sectors, tend to outperform in recessions but may underperform during economic expansions.

Popular Safe Haven Stocks:

When markets are volatile, investors often turn to safe haven stocks under utility, consumer staple, and healthcare categories. Some popular choices include:

Utility stocks: NextEra Energy Inc., Southern Company, York Water Company, New Jersey Resources Corporation, and Cabot Oil & Gas Corporation.

Consumer staple stocks: Procter & Gamble Company, Colgate-Palmolive, Coca-Cola Company, Walmart Inc, Philip Morris International Inc, and Costco Wholesale Corporation.

Healthcare stocks: Johnson & Johnson, Pfizer Inc, Merck & Co Inc, and United Health Group Inc.

Key Considerations When Trading Safe Haven Stocks:

Several factors should be considered when trading safe haven stocks:

Beta: Assess the correlation between a stock and the market to hedge against increased volatility.

Dividends: Stocks with high dividend yields are often perceived as safe haven options, providing a fixed source of income.

P/E ratio: Look for stocks with lower P/E ratios, indicating undervaluation relative to past movements.

Large established companies: Reputable companies tend to retain value during downturns, making them ideal safe haven candidates.

Other Safe Havens to Watch:

Safe haven assets extend beyond equities to forex and commodities like gold. Consider options such as Japanese Yen, Swiss Franc, US Dollar, cash, and Treasury bills (T-bills) for additional security against market downturns.