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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.

  • Boring bonds beat sexy stocks. Here's why

    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.

    Bonds are supposed to be for conservative investors who are not willing to take on a lot of risk and don't get freaked out by the daily market headlines. Professional fixed-income investors are data wonks MORE

    - Jul 31, 2014 1:39 PM ET
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    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.

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    - Jul 24, 2014 1:57 PM ET
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  • 5 reasons why the market won't crash

    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.

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    - Jul 22, 2014 1:23 PM ET
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    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.

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    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 have pulled back a bit from their all-time highs lately.  It makes sense. The bull needs a rest. He needs to nap every now and then.

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  • Stop selling! Stocks are STILL your best bet

    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.

    Even though the S&P 500 is not too far from its all-time high, it's been a reluctant rally. Investors are still nervous.

    How do I know this? Well, the CNNMoney Fear & Greed Index continues to MORE

    - May 22, 2014 1:42 PM ET
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  • Investors are getting out of U.S. stocks

    Stocks may be near record highs, but investors are getting out.

    New data released Wednesday show investors have slashed their exposure to U.S. stocks in recent weeks, choosing instead to pile into bonds or simply hold cash.

    Many are still fearful of another major drop in the stock market, and they aren't sure how to read the current conditions. It's a peculiar period in the market with tumbling small-cap stocks, diminished volatility and low interest MORE

    - May 22, 2014 6:37 AM ET
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