12 'Hindenburg-Proof' Defensive Stocks
Last week's second Hindenburg Omen occurrence only intensified concerns many investors have about the current state of the stock market.
The Hindenburg Omen is a technical indicator of a looming stock market crash.
It's believed that two Hindenburg Omen occurrences within a 30-day period can trigger this type of disaster in the stock market.
"Markets are a manifestation of human behavior, and as we know, humans want to repeat behaviors over time," Huntington Asset Advisors' Peter Sorrentino said.
"The sort of dichotomy highlighted by this price action highlights that there are two very different views of what the future will be, and both can't be right simultaneously. This will need to correct itself in either the proposed sell-off, or in a substantial rally."
But whether a stock market crash proves inevitable — or we're actually headed for a major bull-market — investment experts that TheStreet spoke with have recommended a series of diverse Dow, Dow-like and S&P 500 stocks that can both weather the storm and ride a bull market.
Read on for these diverse stocks with Morningstar's take and see what Huntington's Sorrentino and Harvey Neiman of the Neiman Large Cap Value Fund recommend — regardless of what shows up in the crystal ball.
Mean Analyst Recommendation: 8 Strong Buys, 4 Moderate Buys, 8 Holds, 2 Strong Sells
Stock Price/Earnings Ratio vs. Industry's: 58.5%
Market Cap: $16.79 billion
Trailing Twelve-Month Revenue: $13.22 billion
Morningstar's Take: "Chubb has distinguished itself through superior customer service and disciplined pricing with the goal of creating a loyal and sticky customer base. Although this works on the margin, Chubb hasn't created a brand strong enough to earn itself an economic moat, though it has recovered from previous missteps and is on the right path."
View of Huntington Asset Advisors' Sorrentino: Sorrentino notes that both Chubb and Travelers provide services that are necessities, and that's what makes them good stocks to own.
"The disappearance of irrational, or careless competitors (AIG) leads to a better pricing environment for the surviving companies."
"People view their insurance as they do their utilities, something that must be paid. Chubb deals primarily with higher-end customers who are even more disposed to maintain protection of their assets. Most insurance companies invest their reserves conservatively; this adds another level of attractiveness to them."
Mean Analyst Recommendation: 6 Strong Buys, 3 Moderate Buys, 11 Holds, 1 Strong Sell
Stock Price/Earnings Ratio vs. Industry's: 55.5%
Market Cap: $23.54 billion
Trailing Twelve-Month Revenue: $24.67 billion
Morningstar's Take: "By sticking to a long-term risk management perspective and conservative investment practices, The Travelers Companies has weathered recent economic and financial events quite well. This has placed the company in a strong competitive position, as many competitors have been weakened. Although we don't think Travelers has developed an economic moat, the company may well carve one out if it can capitalize on its current competitive edge."
3. Franklin Resources
Mean Analyst Recommendation: 8 Strong Buys, 2 Moderate Buys, 8 Holds, 1 Moderate Sell
Stock Price/Earnings Ratio vs. Industry's: 104%
Market Cap: $22.3 billion
Trailing Twelve-Month Revenue: $5.56 billion
Morningstar's Take: "With around $575 billion in assets under management, and more than one fourth of its managed assets sourced from clients residing outside the United States, Franklin Resources is one of the larger global asset managers. The firm's wide moat has been built on the scale of its operations, the strength of its brands, and the diversity of its AUM by asset class, distribution channels, and geographic reach."
"Even though Franklin carries a bit more equity AUM than it does any other asset class, the diversity of the firm's operations has allowed it to not only maintain its managed assets, but generate investor inflows in a period when most other asset managers have been struggling to do the same. While the company has had the most success generating inflows into its fixed-income funds, Franklin has geared up sales efforts to capture equity inflows once investor risk appetite increases."
"With some of the best organic growth in the industry over the last year and a half, and solid performance across both its fixed income and equity platforms, we continue to believe that Franklin is one of the better-positioned asset managers."
Sorrentino's View: "The events of the last decade have shaken the confidence of even the most seasoned investors. As a result we see the surviving asset managers gaining a greater share of wealth to manage.
"The lack of returns will make managed products more attractive as the retail investor struggles to search out return.
"The original core of Franklin was fixed income focus while Templeton was principally global in emphasis. Both are areas we believe will present both greater returns ... in the future."
4. Emerson Electric
Mean Analyst Recommendation: 10 Strong Buys, 8 Holds
Stock Price/Earnings Ratio vs. Industry's: 70.7%
Market Cap: $35.12 billion
Trailing Twelve-Month Revenue: $21.12 billion
Morningstar's Take: "Emerson Electric provides investors with a broad portfolio of industrial businesses and a reputation for providing consistent returns to investors. We like Emerson's prospects despite the tough competitive environment."
Sorrentino's View: He said he likes that both Emerson Electric and Illinois Tool Works have a global manufacturing focus.
"Emerson has a global presence in a number of key infrastructure areas, electrical power distribution, indoor climate control industrial automation."
"All are vital to developing economies, and to developed economies working to maintain competitive capabilities."
5. Illinois Tool Works
Mean Analyst Recommendation: 16 Strong Buys, 6 Holds
Stock Price/Earnings Ratio vs. Industry's: 76.2%
Market Cap: $21.2 billion
Trailing Twelve-Month Revenue: $15.02 billion
Morningstar's Take: "Illinois Tool Works earns above-average returns by churning out innovative products in seemingly mundane markets, while supplementing its growth with a very productive serial acquisition program. High levels of profitability are maintained in its base business (and performance is greatly increased in acquired businesses) as a result of ITW applying its unique set of operational tools known as 80/20. We think the company enjoys a narrow economic moat surrounding its business."
Sorrentino's View: "Emerson has a strong enough balance sheet and cash flow to exploit opportunities without relying upon capital market funding."
6. General Mills
Mean Analyst Recommendation: 12 Strong Buys, 3 Moderate Buys, 3 Holds
Stock Price/Earnings Ratio vs. Industry's: 70.1%
Market Cap: $22.57 billion
Trailing Twelve-Month Revenue: $14.8 billion
Morningstar's Take: "A weak economy and commodity prices that remain above long-term averages have weighed on the performance of firms across the packaged food industry. Despite these challenges, we believe its portfolio of market-leading brands and expansive global distribution network should enable it to continue generating solid returns for shareholders longer term."
Sorrentino's View: "A well run global food company selling into 100 different countries. By selling both branded and store brand labels, they are positioned to capture customer demand in developed markets."
"By operating in emerging markets, they benefit from the consumer demand for greater ease and improved diet that comes with a burgeoning middle-class. By virtue of their industry leading profitability, General Mills has the ability to acquire additional product lines and improve the results."
Mean Analyst Recommendation: 11 Strong Buys, 1 Moderate Buy, 1 Hold, 1 Moderate Sell, 1 Strong Sell
Stock Price/Earnings Ratio vs. Industry's: 92.3%
Market Cap: $57.52 billion
Trailing Twelve-Month Revenue: $25.39 billion
Morningstar's Take: "Over its long history, 3M has invented some of the world's greatest products. We think that the firm's innovative culture, bottom-line focus, and low-cost manufacturing have carved a wide moat around its business that will enable the company to reap outsized rewards over the long run."
Sorrentino's View: "One of the global material stocks that have extremely powerful balance sheets and can chart their own destiny. They're not completely dependent on the U.S. financial markets."
"Economies that are manufacturing goods and building infrastructure require a great deal of the products that 3M provides, sealants, coatings, adhesives, engineered materials and a host of other inputs that are high in proprietary content and cost effective in application."
"Again, very strong financial position with cash flow well in excess of the companies immediate needs assures that they can exploit opportunities to enter new markets either by developing new products, or by acquiring companies."
8. Sempra Energy
Mean Analyst Recommendation: 5 Strong Buys, 2 Moderate Buys, 2 Holds
Stock Price/Earnings Ratio vs. Industry's: 62.2%
Market Cap: $12.63 billion
Trailing Twelve-Month Revenue: $8.85 billion
Morningstar's Take: "Sempra Energy is one of the most diversified natural gas plays in the United States. Formed by the merger in 1998 of two California utilities, San Diego Gas and Electric and Southern California Gas, the company has steadily expanded its footprint to include unregulated power plants, gas pipelines and storage, liquefied natural gas, and commodities and power trading."
"These unregulated businesses are well-positioned to capitalize on volatile gas and power markets in the U.S. But the biggest growth opportunities lie at its regulated utilities, where Sempra plans to increase its rate base by nearly 75% through 2013."
View of Neiman of the Neiman Large Cap Value Fund: "It's providing utilities to the residences and businesses of the community, and that doesn't change because the market crashes. It's price earnings is in the healthy range of about 14X. For a utility, it's also in a fairly level debt to equity structure of about 80% debt to equity."
"It's starting to get to the higher end of level where I would worry in other industries, but utilities and energy providers are often do have a fair amount of debt for what they have to do. It's priced very favorably at 1.5 price to book and a 3% dividend."
"Every time I mention the dividend paying stock — it props up in difficult markets. The dividend paying stocks, if they're true dividend stocks — from the earnings, they're not just manufactured dividends to look good — and of course in the companies I'm referring to, they're genuine, steady, year-in-year out dividends."