NEW YORK (CNN/Money) -
In a turbulent market, low-risk stocks look even more attractive than usual.
This month, the stock market recovery celebrated its first anniversary with a pullback. Within the past week, the major indexes have given back all their 2004 gains -- and then some. Federal Reserve chairman Alan Greenspan may have tried to pacify the roiling market by saying the Fed would be "patient" about raising interest rates, but the volatility continues.
Such a slump is a natural breathing space and, as I wrote last week, not necessarily a sign that anything fundamental is wrong -- either with the economic recovery or with the bull market. Nonetheless, current volatility is a reminder of the need for careful diversification that stresses low-risk, moderate-growth stocks.
Whenever share prices pull back, groups such as cyclicals, technology and special situations are likely to post the greatest short-term losses. That volatility doesn't undermine the long-term case for those stocks.
Anadarko Petroleum, for instance, remains an attractive play on North American oil and gas reserves. Microsoft still gets top ratings from analysts, despite its endless legal wrangling (most recently with European Union antitrust regulators). And Disney continues to trade at least 20 percent below the value of its assets.
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 | | Stock | | Symbol | | PE | | Citigroup | C | 13 | | Fortune Brands | FO | 16 | | Target | TGT | 20 |
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But stock market volatility should prompt investors to examine their portfolios to see if they are taking unnecessary risks. To minimize those risks, you should be able to find stocks with above-average growth rates and moderate price/earnings ratios that have a relatively low exposure to market swings. Here are quick looks at three such picks.
Citigroup (C: Research, Estimates) is the largest and best-diversified U.S. financial services company.
As a general rule, leading banks -- including institutions such as J.P. Morgan Chase and Washington Mutual, as well as Citigroup -- offer the some of the cheapest growth potential in the stock market. Their P/Es below 15 seem exceptionally low, considering the stocks' double-digit growth rates and 3 percent-plus yields.
Citigroup's strong fourth quarter contributed to a 17 percent earnings gain for 2003 as a whole on a 9 percent rise in revenues (earnings from continuing operation were up more than 30 percent). At $50, the stock trades at only 13 times estimated 2003 earnings.
Fortune Brands (FO: Research, Estimates) is a holding company with a wide variety of top consumer brands. Among them: Moen faucets, Master Lock padlocks, Titleist golf balls and Jim Beam bourbon. In November, the company completed the $925 million acquisition of Therma-Tru, the leading U.S. maker of residential entry doors.
Strong consumer spending helped propel fourth-quarter earnings to a 20 percent gain. Diluted earnings for the full year were up 13 percent. Profits are projected to rise 14 percent this year and continue at a double-digit compound rate over the next five years. At $71, the stock yields 1.7 percent and trades at a 16.4 P/E.
Target (TGT: Research, Estimates) is a leading discount chain that leans toward slightly more upscale merchandise than its competitors. At a time when consumers want to splurge a little but are still anxious and budget-conscious, the strategy has been working well.
Sales are running ahead of plan -- and Target's same-store growth exceeds Wal-Mart's. Analysts expect Target to become even more competitive in the discount sector now that the company has announced plans to become a pure play by selling its Marshall Field's and Mervyn's chains.
For the most recent quarter, earnings rose more than 20 percent. For all of 2003, results were up 11 percent on a revenue gain of nearly 10 percent. Over the next five years, earnings are projected to grow at a 15 percent compound annual rate. At $45, the stock trades at just under 20 times 2003 earnings.
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