3 Low-Risk Stocks With Handsome Yields

Famed investor Howard Marks recently told investors to revisit risk in their portfolios, especially in the current market. Here are three low-risk stocks offering enticing dividend yields that are great for loss prevention. 

low risk stocksAlthough Howard Marks isn’t as popular as billionaire Warren Buffett, he’s a very smart investor who consistently offers valuable investing insights.

Howard Marks co-founded Oaktree Capital Management back in 1995. Today, his investment firm manages some $90 billion for foundations, pension funds and endowments.

One of the ways that Marks offers insight is with quarterly memos to clients. Marks’ memo from the first quarter, Dare to be Great II, was chocked full of insight regarding thinking differently when it comes to picking stocks. 

Last week, Marks sent out another one of his famous memos to clients, entitled Risk Revisited. This time it’s all about risk and preventing loss in your portfolio. In it, Marks notes,

It’s the job of investors to strike a proper balance between offense and defense, and between worrying about losing money and worrying about missing opportunity. Today I feel it’s important to pay more attention to loss prevention than to the pursuit of gain. 

Loss prevention is often an overlooked concept in investing. Too often, investors are worried about potential returns. But all the great investors understand the importance of mitigating risk. One of greatest value investors of all time, Warren Buffett, has the following rules for investing:

Rule No. 1: Never lose money . . . Rule No. 2: Don’t forget rule No. 1. 

Here are three stocks for revisiting risk:

No. 1 Stock for Revisiting Risk: Verizon Communications (NYSE: VZ)

This telecom giant has a beta of just 0.4. In part, risk is measured by how volatile a stock is; beta is a measure of volatility. For example, a beta of 0.5 means that for every $1 the stock market falls, on average, the stock only falls $0.50.

Couple that with its 4.25% dividend yield and it’s a great investment for investors looking to protect themselves against a market pullback. The other exciting aspect to Verizon is that it’s attractively priced. Shares trade at a P/E (price-to-earnings) ratio of 10.6. Meanwhile, the S&P 500 trades at an average P/E of 20.

As the leader in the United States wireless market, Verizon should continue to enjoy success related to the increase in smartphone adoption. It’s a slow and steady market, which gives Verizon a strong source of steady revenues.

There’s also still plenty of room for more growth. Only about 60 million of Verizon’s  100 million customers use 4G smartphones — the other 40 million are split evenly between 3G smartphones and basic phones.

No. 2 Stock for Revisiting Risk: Lockheed Martin Corp. (NYSE: LMT)

The ongoing Iraqi conflict and conflict between Russia and Ukraine should continue to bring more attention to the need for a strong national defense. As the United States’largest defense contractor, Lockheed has exposure to the Air Force, Army, Navy and federal government. 

Even in the face of budget sequestration, Lockheed’s stock is up 90% since 2013 — a return that’s more than double the S&P 500 over the same period. Lockheed’s beta is just 0.7. Its key product is Lockheed’s very popular F-35 fighter jet, which should see strong demand through 2015. Potentially boosting F-35 jet sales over the long term is the fact that Lockheed has an agreement with the Department of Defense to make the jets more affordable by 2019.

In the defense industry, being the biggest is best. Lockheed has a return on assets of 8.5% and return on investment of 29.8%, which is best among the major aerospace and defense companies.

The defense company also offers a 3% dividend yield, compare that to the S&P 500 average dividend of just 1.9%. Even still, it trades at a forward P/E ratio (based on next year’s earnings estimates) of just 14.5, making it very attractive from a valuation standpoint.

No. 3 Stock for Revisiting Risk: Intel Corp. (NASDAQ: INTC)

Intel is the market share leader in the microprocessor market and its beta is just under 1. It’s benefiting from the rising demand for PCs, which was in decline for some time. The server side of its business is also growing nicely as IT departments loosen their purse strings. But server demand will also pick up as companies transition more toward cloud computing.

Beyond PCs and servers, Intel  is gaining traction in mobile (now attacking the tablet market) and wearables. With a P/E of 17.3 and debt-to-equity ratio of only 22%, it looks to be one of the best investments in the semiconductor space. It also offers a 2.6% dividend yield.

For long-term investors looking for a more risky pick, there’s EXCO Resources (NYSE: XCO). Its beta is a little higher than the three stocks above, coming in at 1.25. But this is the largest holding in Marks and Oaktree’s $5.7 billion stock portfolio.

Exco is an oil and gas explorer and producer with resources in Texas, Louisiana and Appalachia regions. This small-cap stock offers an impressive 4.4% dividend yield. Shares are trading right at 52-week lows, but the company has production assets in some of the fastest-growing shales in the U.S., including the Haynesville and Marcellus shales.

Sometimes investing isn’t always about making money. Sometimes you have to focus on the worst case. And with the market trading at all-time highs, it couldn’t be a better time to add some low-risk stocks to your portfolio.

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