CNBC Stock Blog

12 'Hindenburg-Proof' Defensive Stocks

Andrea Tse|TheStreet Staff Reporter

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.

1. Chubb

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."


2. Travelers

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."

7. 3M

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."

9. UnitedHealth

Mean Analyst Recommendation: 11 Strong Buys, 1 Moderate Buy, 8 Holds, 2 Strong Sells

Stock Price/Earnings Ratio vs. Industry's: 97.9%

Market Cap: $35.5 billion

Trailing Twelve-Month Revenue: $89.94 billion

Morningstar's Take: "UnitedHealth's scale endows the firm with significant competitive advantages. With underwriting and regulatory concerns fading to the background, we think UnitedHealth will continue churning out free cash flow and creating value for investors for the foreseeable future."

Neiman's View: The company "has some very value-oriented numbers that as if it's already preparing for a crash. The stock has been a steady performer as far as its price level has been fairly steady in those volatile markets on a relative basis; it obviously goes up and down."

"Price-earnings is 9. How do you ignore a stock, how do you choose a stock that's ready for the rough times with a price earnings of 9, if debt is a lot healthier ... it's only 40% debt to equity, and it's priced at a value of 1.4 X the book value of the company, so well less than 2, which is in the range."

"Its dividend is steady. It's a little less of a dividend — but remember it's in the health industry — so the fact that it pays 1.5% dividend indicates that it's still sharing — it's conscious of its shareholders and shares its dividend."

10. Procter & Gamble

Mean Analyst Recommendation: 15 Strong Buys, 2 Moderate Buys, 7 Holds

Stock Price/Earnings Ratio vs. Industry's: 99.6%

Market Cap: $170.45 billion

Trailing Twelve-Month Revenue: $78.94 billion

Morningstar's Take: "Procter & Gamble's size confers tremendous benefits in terms of distribution, brand reach, and scale with suppliers, but the goliath was caught flat-footed in its response to the dramatic downturn in consumer spending. With a new CEO at the helm, however, P&G has implemented plans to reinvigorate top-line and earnings growth, and we remain confident that the household products stalwart will be able to reposition itself for a more challenging economy."

"At its core, P&G possesses unprecedented skills in consumer understanding, marketing, and brand-building and, the firm's slow reaction to the downturn notwithstanding, these skills haven't wavered."

Neiman's View: "It's been up and down, but Procter & Gamble has been steady enough — it's been so level and far less choppy over say a one-year period than many of the other stocks that are still very good stocks. It has barely moved in its price and that's the kind of stock — they call it a low beta stock, in a crash, that's the one that's going to be a good fighter. 16 X price earnings; 30% debt, price to book is under 3 X price to book, and then the dividend is back in that range I've been referring to: 3.2% dividend."

It's a "cross section of health products and beauty products. I think men and women will continue to use their health products even if the market crashes and therefore that's why it gets our attention. It gets our attention because of its stability."

11. V.F. Corporation

Mean Analyst Recommendation: 9 Strong Buys, 1 Moderate Buy, 7 Holds

Stock Price/Earnings Ratio vs. Industry's: 83.3%

Market Cap: $8.17 billion

Trailing Twelve-Month Revenue: $7.35 billion

Morningstar's Take: "Faced with limited growth prospects in the U.S. ten years ago, VF Corp began acquiring brands, and has effectively transformed from a mature jeans, lingerie, and uniform manufacturer into a global provider of apparel brands. The firm developed a solid track record and added nearly $4 billion in revenue to its lifestyle collection over the years, through acquisitions of brands like Nautica, The North Face, Vans, and Seven For All Mankind."

"Sales from The North Face, Vans, and Kipling have each increased at roughly a 20% compound annual growth rate since the brands were purchased. Today VF Corp operates a balanced product suite, and has delivered consistent midteens returns on invested capital, well ahead of our estimate of cost of capital, supporting our narrow economic moat view."

Neiman's View: "It's a conglomerate in clothing manufacturing. Famous names like Wrangler Jeans, North Face. It just has some excellent, excellent labels. Its just a lot of familiar names and it has the good numbers."

"Its price earnings is 15,right within the range that we've been mentioning of certainly a lot of the Dow stocks; the debt is 2% debt to equity ratio — I mean that's a healthy company just right there without saying more. Trades at 2.1 price to book, and the dividend is a healthy 3.1% right there with ... a good manufacturing company you get 3% or better, you're in good shape, that's as good as you're going to do with dividends.

"And it's pricing activity on the charts is — it follows the same pricing as the Dow Industrials, so it acts very much like it, it seems to have a little — better buoyancy — I can't say it's hugely better, but it's certainly going to react no differently than the market reacts whether in up markets or down markets, so there's at least predictability with the stock in relation to the broad market itself."

12. Kraft Foods

Mean Analyst Recommendation: 10 Strong Buys, 3 Moderate Buys, 4 Holds

Stock Price/Earnings Ratio vs. Industry's: 76%

Market Cap: $50.86 billion

Trailing Twelve-Month Revenue: $45.2 billion

Morningstar's Take: "Kraft continues to expand its global distribution platform, most recently with the acquisition of Cadbury. In our opinion, Kraft is paying a fair price for this attractive asset, but the firm's use of its undervalued stock makes the deal slightly destructive to shareholders. The combined firm will maintain the leading position in the global confectionery space, but challenges remain, particularly due to elevated input costs and soft consumer spending."

Neiman's View: "It's been in our portfolio for a while. The things that I look for in a stock that might survive either large volatility on the one hand or the possible crashes is, its P/E first off is in the range that's acceptable. No single factor is ever perfect, but its P/E is less than 20 x earnings. There are stocks that are lower, but there are many, many stocks that are higher, so that's in a safe range."

Harvey Neiman

"The next area is its debt structure. It's debt is a little on the higher end of the safe range; it's about 70% debt to equity ratio and we look at stocks that are at least one to one or less. And certainly that is in a safe range. And its pricing structure is fairly modest and pretty good value still. Its price-to-book ratio — and we usually look at the best we can to keep things under 3 X price-to-book or in this case it's only 1.7 so it's in a pretty safe range."

"And here is the fourth and the strongest factor why it would survive as well as any stock can in either a down market or even that inevitable crash situation. It's dividend is pretty healthy on a relative basis. I calculate it as 3.9%, depending on the price on a particular day, and its dividends are consistent. It's that kind of a company. So those are the factors, and that's how it applies to Kraft."

"One more comment on it is just the general industry of supplying a broad spectrum of food products. Just cause the market would crash, why would people stop buying food? And therefore it's in an industry that is certainly healthy and vibrant. Yes, the economy still has a ways to go to return to its strong, robust levels, but if you go out onto main street, you see people still in the shopping centers, people shopping in line. They're buying goods and services in our country and certainly Kraft Foods is in the right series of consumer industries."

Regarding worries of the Cadbury integration risk: "Remember I made a comment about the debt-to-equity — was a little on the higher end, but still within the range? When acquisitions occur, and when more debt is taken on, can they do it at a time when they can afford to do it? And I have to vote for the fact that they increased their debt and they had the cash flow — meaning Kraft Foods made a corporate decision to spend its cash in a way that in the long run, any merger, any purchase, says, 'ok, we make a capital investment, how many years does it take us to get our return of the capital."

"And therefore, I feel with their strong cash position, they earn $5 billion a year in just cash contribution, and therefore they did it at a time that they felt they could do it, and if it was done just recently — they had the funding to do it and therefore made the purchase. Cadbury is a name that's well known, and they must feel it fits their product mix. I think in this economy, they were probably as good a company to make that move as anybody as opposed to heavy deficit borrowing. In other words, their borrowing still kept them in the range of healthy borrowing."

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Disclosure information was not available for Tse or his company.