In uncertain times, capital protection rather than appreciation should be a priority for investors. One way to accomplish this is by selecting super safe stocks to protect your portfolio. Although these safe stock picks might decline during market turmoil, they hold up better than the overall market.

So, why should you consider these safe stock picks? First, we are entering a seasonally weak period after an excellent first quarter. Secondly, the macro-outlook is becoming more alarming. Just from scanning the headlines, it is easy to tell that storm clouds are gathering. The market has multiple headwinds, including the debt ceiling banking turmoil, the Russian-Ukraine crisis and the slowing consumer demand.

Considering the dire outlook, it’s prudent to position your portfolio defensively, for instance, by reducing your growth and adding to established safe stock winners. Historically, established bellwether stocks have navigated crises successfully. They are battle-tested stocks that can grow through recessions while outperforming the broader market.

For the rest of 2023, investors should consider some safe stock winners like Walmart (NYSE:WMT), Home Depot (NYSE:HD) and O’Reilly Automotive (NASDAQ:ORLY). Today, these stocks still have substantial competitive advantages and unique business characteristics likely to support outperformance in this cycle.

Now, let’s delve into the merits of investing in these three super safe stocks for 2023.

Walmart (WMT)

In terms of safety, nothing comes close to Walmart. It has consistently proven to be a super safe stock to protect your portfolio. In 2008, Walmart’s performance showcased its resilience in the face of economic turmoil. Despite the Great Financial Crisis (GFC) recession, it grew revenues by 8.6% in 2008. And for the two years between 2007 and 2008, the stock handily outperformed the S&P 500 index rising 20%, while the index fell -36%.

Its defensive nature stems from the company’s commitment to offering value-priced goods and everyday essentials. Over the years, its price-conscious approach has resonated with budget-conscious consumers, especially during downturns.

So, how does Walmart maintain its moat? Its strong supply chain management and operational efficiency allow it to maintain competitive pricing that few retailers can match. Therefore, during downturns, they attract customers and retain their loyalty. Also, its extensive global scale allows it to enjoy enormous economies of scale.

Now, the company is in a stronger strategic position than in 2008. Over the last decade, the company has invested significantly in e-commerce and omnichannel strategies. These new initiatives are supporting growth as it also leverages its global scale to lower costs for consumers.

Despite its massive size Walmart is still growing, a remarkable feat for a company of its size. In fiscal year (FY) 2023, total sales rose by $39 billion, up 6.7%. In terms of growth expectations, the company is enhancing its multichannel capabilities. Since 90% of Americans live within a 10-mile drive of a Walmart location, this channel presents a huge opportunity.

At a forward price-to-earnings (PE) of 22 times, Walmart is a safe stock pick for 2023. Its low-price strategy will attract more customers as consumer finances tighten. Meanwhile, new opportunities in e-commerce and advertising will support revenue growth in the coming years.

Home Depot (HD)

At face value, Home Depot might appear to be a cyclical stock. However, its focuses on home improvement instead of housing transactions. Thus, its business is more resilient during downturns compared to other housing-related stocks. Historically, mortgage rates have not influenced the demand for its products and services. Besides, the stock has been relatively immune to increasing interest rates.

Currently, many homeowners are facing the phenomenon. They aren’t ready to give up their 3% 30-year mortgages for a new 6% rate on a new home. For these consumers, the next best option is a remodel. Already, most homeowners built up a lot of home equity when rates were low. Now, they can use it to finance home renovations.

Home Depot is among the super safe stocks to protect your portfolio due to the expected home renovation boom. Its revenue is evenly split between Do It Yourself and Pro Builders. Still, the professional contractor segment is experiencing robust demand due to huge contractor backlogs from Covid-19 labor and supply chain constraints. With a massive backlog of homeowners waiting for renovations, demand from this segment will persist for the rest of 2023.

In terms of financial performance, the results are impressive. In FY2022, comparable sales grew by 3.1%. Earnings and cash flows were also strong, with EPS hitting $16.69 per diluted share. Based on these metrics, the stock trades at a trailing price to earnings of 17 times. Also, the stock has a strong return on invested capital of 44.7% and 44.6% in FY2021 and FY 2022, respectively. Considering the expected renovation boom, reasonable valuation, and durable business model, the stock is among the best safe stocks for 2023.

O’Reilly Automotive (ORLY)

Sometimes, safe stock opportunities can be from mundane industries. O’Reilly Automotive is the perfect example in the auto parts sales sector. It sells automotive aftermarket parts and other supplies. Primarily, it operates in two segments; Do It For Me (DIFM) and Do It Yourself (DIY).

Although the auto part retail is a slow growth industry, O’Reilly and its peer AutoZone (NYSE:AZO) have outperformed by a wide margin. O’Reilly has been one of the best stocks to own over the last 30 years. There have been several factors behind the outperformance.

First, they have benefited by consolidating market share at the expense of smaller independent competitors. By leveraging their scale and distribution capabilities, these auto parts retailers have been taking share from smaller competitors.

Secondly, since the industry is cycle agnostic, auto part retailers have enjoyed long-term secular tailwinds. When times are good, consumers drive more, meaning more repairs. Then, when downturns hit, consumers keep their vehicles longer, which generally means more repairs and maintenance.

Due to the solid secular demand, O’Reilly has posted positive same-store sales growth for 30 consecutive years. That’s a remarkable record considering that there have been several recessions, such as the 2001 downturn, the GFC, and Covid-19 pandemic.

Also, over the last 15 years, it has compounded revenue and free cash flow at 12% and 45%, respectively. Management has exhibited discipline in keeping capital expenditures between three to five percent of revenues. Consequently, reduced capital expenditure has allowed the company to return cash to shareholders through repurchases.

As first-quarter earnings showed, the balance sheet is in pristine condition. Also, comparable store sales growth was 10.8% indicating strong execution. If the consumer weakens, expect the stock to outperform as it benefits from more car repairs and maintenance.

On the date of publication, Charles Munyi did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Charles Munyi has extensive writing experience in various industries, including personal finance, insurance, technology, wealth management and stock investing. He has written for a wide variety of financial websites including Benzinga, The Balance and Investopedia.

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