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How to stay safe in a scary market

August 7, 2014: 12:29 PM ET
The market is a risky bet. But you can have a winning hand in your portfolio with blue chip, dividend-paying stocks.

The market is a risky bet. But you can have a winning hand in your portfolio with blue chip, dividend-paying stocks.

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

Remember how stocks did nothing but go up all the time? That's so 2013.

Volatility is back. Investors are growing increasingly jittery about geopolitical flare-ups in Ukraine and Gaza (and beyond). People are worried about market valuations.

The CNNMoney Fear & Greed Index is at the Extreme Fear level of 6 and can't go much lower! (There is no such thing as a negative reading.)

I wrote last week about how long-term Treasury bonds have outperformed stocks this year. Since then, bond prices have climbed further (sending yields down) and stocks have fallen a bit more. It shows that investors are craving safety.

But rushing into bonds and ignoring stocks because of short-term risks is not a smart move for the long haul.

Related: 5 big retirement mistakes

"History says that when investors get nervous, that is a reasonable time to go the other way. Selling when stocks are down is the opposite of what you should be doing," said Patrick Kaser, a managing director for Brandywine Global. "Investors have to retrain their brains to think of a longer-time frame."

Exactly. I said as much last week in the video below.

So now's the time (Paging Charlie Parker! Bebop fans will be rewarded at the end of this column) to be looking at blue chip, dividend-paying companies that can hold up well during rocky periods for the broader market.

Kaser likes industry giants such as Cisco (CSCO), Microsoft (MSFT), GM (GM), JPMorgan Chase (JPM), Citigroup (C) and Metlife (MET).

All six stocks pay dividends and five of them (Citi is the exception) have dividend yields that are greater than the 2.45% yield on the 10-year Treasury.

Related: Small stocks are sinking

They are all bargains as well. The three financials and GM each trade for less than 10 times 2015 earnings estimates. Cisco and Microsoft are valued at 12 and 16 times forecasts for 2015 profits, respectively.

"We're not invested in these stocks just because they are big. We're in them because they are cheap," Kaser says.

Mark Eveans, chief investment officer of Meritage Portfolio Management, also is favoring larger, brand name stocks. His firm owns tobacco titan Altria (MO), semiconductor leader (INTC) and defense contractor Lockheed Martin (LMT) in its Meritage Yield-Focus Equity fund.

Intel and Lockheed pay dividends that yield more than 3%. Altria's stock has a yield of 4.5%.

Related: The 4 biggest mistakes investors are making

Eveans says these kinds of companies offer protection for investors in uncertain times. They all have strong balance sheets -- so you can count on the steady dividend payments even if the stock prices don't rise all that much.

"If the broader market sluggishness continues, high-yield stocks should do well over the long-term," he said, adding that "dividends should play a bigger role in any investment strategy."

Eveans is hopeful that the recent market pullback will also make companies think twice about using cash to buy back more stock. Share repurchases are often viewed as a good thing by investors because it's an easy way to improve earnings per share since it lowers the share count.

Related: 5 reasons why the stock market won't crash

But a dividend is tangible. It's actual money an investor can use to buy more stock ... or other things that could help boost the economy.

Eveans also advises investors to think globally. His fund owns British drug maker AstraZeneca (AZN), Canadian banks Toronto-Dominion (TD) and Bank of Montreal (BMO) as well as Australian financial firms National Australia Bank (NABZY) and Australia and New Zealand Banking Group (ANZBY).

Kaser said investors need to think beyond the U.S. as well. His firm owns China Mobile (CHL) and Toyota (TM).

Related: China stocks are back from the dead

Of course, none of these stocks will be immune from broader macroeconomic trends. But if you are willing to buy the argument that what's going on now may be nothing more than the start of a healthy correction and not the second coming of 2008, then sticking with blue chips is a way to help you sleep better at night.

As any halfway-decent poker player knows, you don't fold your hand when you've got good cards.

Reader Comment of the Week ... and The Buzz is going on a late summer hiatus! It's a bit strange to me to see so much anxiety about this market "slump" since the S&P 500 is still just 3% from its all-time high. But one Twitter follower hopes to profit from this "panic."

Well-played. Good luck with Pfizer (PFE). And bonus points for this Godfather of Soul video following my tweet on Coach (COH) and Michael Kors (KORS) earnings!

Anyway, I hope everyone enjoys the dog days of summer. I'm off tomorrow and the next two weeks. So I'll be back on Twitter on 8/25 and will have a column on 8/26.

Sorta sad to be missing Cisco earnings next week. So I'll get this out of my system. CAYSH!

And for those of you who have stuck around this long due to the promise of a Bird video, I am a man of my word. Enjoy.

  • Investors aren't bringing sexy back

    Boring is back.

    In a choppy market, investors are shifting their strategy, eschewing the once sizzling sectors (think: tech) in favor of the more mundane variety (think: utilities).

    Dividend-paying companies, long-considered a tad too defensive, are especially in vogue now.

    Red hot names such as Tesla (TSLA) and Netflix (NFLX) have tumbled this month, while utility stocks, known for their healthy dividends, have jumped. The Utilities Select Sector SPDR Fund (XLU) is up over 9% this year. Its top MORE

    - Apr 7, 2014 4:02 PM ET
  • Sexy is overrated. Dividends rule!

    The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

    Is it time for investors to do their best impersonation of the Virginia Cavaliers basketball team and play some stifling defense?

    Momentum stocks have had a miserable March. Just look at how poorly the Nasdaq and MORE

    - Mar 25, 2014 12:41 PM ET
  • Risk averse? Think tech. Really.

    This article was published in the March issue of Money magazine.

    By Paul R. La Monica 

    The tech-heavy Nasdaq index may be nearing its early-2000 levels, but the technology sector looks nothing like it did in the bubble years.

    For starters, these shares are no longer absurdly valued. In fact, they trade at lower price/earnings ratios, based on projected profits, than the broad market. And many old-guard names are downright unloved, making them targets MORE

    Mar 10, 2014 9:26 AM ET
  • The strangest bull market ever

    The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

    This bull market is really odd. The Dow and S&P 500 are near all-time highs. The Nasdaq is inching closer to 4,000 for the first time since the tech bubble did its best weasel impersonation MORE

    - Nov 14, 2013 1:52 PM ET
  • A different take on dividends

    This article was published in the November issue of Money magazine.

    You may be tempted to declare the great run in dividend-paying stocks over. Investors, after all, are already shifting focus away from stodgy, high-yielding defensive stocks such as utilities and embracing risk again -- as often happens when bull markets age.

    Related: 5 stocks that could hike their dividends

    Yet "the dividend story still has legs," says Stephen Auth, chief investment officer at Federated MORE

    - Nov 13, 2013 9:09 AM ET
  • The stock market in Wonderland

    The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

    These are strange times for the markets. Curiouser and curiouser one might say. If one were a girl who just stumbled upon a bizarre fantasy world.

    And why not? It seems like many days on Wall MORE

    - Jul 30, 2013 12:56 PM ET
  • Stocks may be up, but fear is back in market

    The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

    Stocks bounced back Tuesday after their worst sell-off of the year. Gold rebounded as well, following two consecutive days of staggering declines.

    It's a good sign that stocks (and to a lesser extent gold) are stabilizing. MORE

    - Apr 16, 2013 12:22 PM ET
  • McBoring: Dividend stocks rule, but for how long?

    The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

    The stock market is hotter than Tiger Woods' golf game. (Although I don't think he's going to win another green jacket at Augusta this weekend.)

    But even though the Dow and S&P 500 are hitting new MORE

    - Apr 11, 2013 12:52 PM ET
  • Microsoft and other tech dinosaurs rally

    Dinosaurs are extinct. But dinosaur tech stocks? They're thriving lately.

    Microsoft (MSFT) was up 2% Wednesday and shares passed $30 for the first time since October. That move comes after a nearly 4% rise on Tuesday. Intel (INTC), the chip yin to Microsoft's operating system yang in the Wintel PC market, rose 3% Wednesday. It was up 3% Tuesday too. And Cisco Systems (CSCO) followed up a 2% pop on Tuesday MORE

    - Apr 10, 2013 12:23 PM ET
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