The S&P 500 is down 12% in 2020 and the markets have been showing a lot of volatility, especially since March when the World Health Organization declared COVID-19 a pandemic. However, not all industries and not all types of stocks have been hit equally. There are some industries that are at much more risk today than others. And if you're not sure where to invest right now, a safe choice might be in healthcare.
Why healthcare's the safest option for your money today
Healthcare's on everyone's minds these days as concerns surrounding COVID-19 are front and center on every newscast. Not only are people with COVID-19 suffering but patients with other diseases and illnesses are also struggling as hospitals have pushed many of them down the priority list in an effort to free up resources. But even if there wasn't a pandemic to heighten people's needs for healthcare products and services, they're still essential and demand for them will be a lot more consistent than what other industries may experience for their products and services.
As risky as Johnson & Johnson (JNJ 0.21%) stock may appear to be, facing lawsuits relating to opioids, talc baby powder, and other products, that hasn't been enough to make it a bad investment. When the company delivered its first-quarter earnings in April, sales were still up by 3.3% from the prior-year period and its net earnings rose from $3.7 billion to $5.8 billion, for an increase of 55%. J&J saw lower expenses propel its profit margin from 18.7% a year ago up to 28% in Q1.
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But posting strong numbers is just what J&J investors have come to expect from the stock over the years. In fiscal 2019, the company netted $15.1 billion in profit on sales of $82.1 billion. In 2018, it similarly earned $15.3 billion on $81.6 billion in revenue. In both years, J&J's profit margin was comfortably over 18%. And while the company is expecting some challenges this year, it's still projecting a profit. J&J lowered its guidance for earnings per share (EPS) this year due to the coronavirus from a range of $8.95 to $9.10 and is now expecting EPS to fall between $7.50 and $7.90. Many companies in other industries would be happy to record any sort of profits at all.
Shares of J&J are up a modest 1% so far this year. You could've earned more investing in Amazon (AMZN -1.13%), which is up 28% this year. But tech stocks are more volatile than healthcare stocks and with the tech giant trading at more than 100 times its earnings over the past 12 months and recently falling short of expectations in its most recent earnings report, investing in Amazon may not be the slam dunk that it was in the past. Tech stocks often trade at high valuations, and that can be risky heading into a recession when many investors may start to prioritize value and stability over long-term growth.
Unlike many tech stocks, J&J also pays a dividend. With a yield of 2.7%, investors of J&J can earn a better yield than the 2% payout that they can normally expect from the average S&P 500 stock. Not does it add recurring cash flow for your portfolio, it can be a way to help boost those overall returns.
Other industries possess significant risk
It's not hard to find a lot of risk in the market these days -- just look airlines or oil and gas stocks:
JNJ's single-digit returns look incredible compared to the losses that Boeing (BA 0.32%) and ExxonMobile (XOM -0.56%) stocks have incurred this year. Boeing's been hit by crushing demand for air travel as a result of the coronavirus pandemic. On April 29, the company released its first-quarter results which showed a loss of $641 million for the period. Investors were already been down on the stock due to its grounded 737 Max planes and now with demand for air travel next to non-existent, there's little reason to be bullish on airlines. And the company's CEO Dave Calhoun isn't sugarcoating things, either, as he expects that it may take up to three years for demand to recover.
Exxon's dealing with a related issue, and that's low oil prices. If people aren't travelling, that softens demand for oil. And with there already being an oversupply of oil in the markets, low demand has sent the commodity price crashing, even falling below $0 at one point in April. On May 1, the company reported a $610 million loss as it recorded writedowns due to low oil prices.
The challenge for Exxon and other oil and gas companies is that unless the price of oil recovers, which at this point appears unlikely to happen anytime soon, tougher items may be in store for investors this year and in 2021.
Hide your cash in healthcare, at least for now
In 2020, earning a good double-digit return may be a pipe dream. Simply avoiding losses may be an achievement this year. And a good place to earn a modest return along with a great dividend is in healthcare. J&J is a Dividend Aristocrat and the company increased its dividend payments again in April by 6.3%.
In contrast, ExxonMobile was increasing its dividend for more than 10 years in a row, but that streak came to an end last month. The company's had to freeze its dividend due to the challenges it's facing, although investors shouldn't rule out the complete elimination or suspension of the payouts, especially if oil prices remain low and conditions in the industry do not improve. However, that's still better than Boeing, which announced in March that it will suspend its payouts. The company doesn't expect to pay dividends again for years.
Healthcare stocks offer investors more consistency than other industries do, and many of them also pay dividends as well. That's why for investors who are looking for a safe place to invest right now, healthcare may be the best option to do so.
