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Value Line offers a number of proprietary measures to help investors identify so-called conservative stocks, the most notable being the Safety Rank. This measure is computed by averaging a stock’s Price Stability score and the company’s Financial Strength Rating. Safety Ranks range from 1 (Highest) to 5 (Lowest) and are distributed roughly in a bell curve, with the greatest number of stocks scoring 3 (Average) and the smallest number at the extremes (i.e. 1 and 5). Thus, selecting stocks that hold the best possible scores (i.e., 1 or 2) would help investors to avoid riskier fare.

Value Line provides screens each week, published in the Index section of The Value Line Investment Survey, that cull out stocks earning the highest Safety Rank and the second-best Safety Rank (presented as two separate screens). This alleviates the need to rummage through on a stock-by-stock basis, trying to find the most conservative fare. We also added a few other parameters such as a dividend yield above 3.8% and a market cap above $20 billion to ensure only well established companies made the cut.  A couple of interesting stocks that made the list (see below) include Total ADR (TOT) and Kraft Foods (KRFT).


Total S.A. ADR

Total S.A. ADR’s, founded in 1924 and headquartered in Paris, France, operates as an international oil and gas company. Its business is comprised of three main segments, Upstream, Refining & Chemicals, and Marketing & Services. The first of these engages in the exploration, development, and production of gas and oil, the shipping and trading of natural gas, liquefied natural gas, and petroleum, and also produces electricity and coal. Refining and Chemicals is geared toward refining, trading, and shipping crude oil and petroleum products. In fact, Total has a vested interest in 20 refineries worldwide, including the United States, Africa, the Middle East, and China. Lastly, the Marketing and Services segment focuses on specialty products, such as lubricants and renewable energies. The company’s competitors, which include the likes of Exxon Mobil (XOM - Free Exxon Stock Report), BP plc (BP), and Chevron Corp. (CVX - Free Chevron Stock Report) possess market capitalizations at or above that of Total (currently $137 billion). That said, while the integrated oil and gas companies may sometimes hold a risky overtone, this equity is well-suited for those looking to take a more conservative investment approach.

At this juncture, Total S.A. garners our top rank for Safety (1), thanks largely to its solid fundamental footing and wide geographic exposure. While the operating environment is relatively lukewarm at present, with regard to European refining and unfavorable pricing pressures, the company’s global scope of operations and desire to expand drilling, help to alleviate investors’ concerns. Accordingly, Total has several projects in the pipeline, specifically in Norway, the U.K., and Nigeria, for the year ahead, along with additional drilling sites further out. What’s more, a healthy balance sheet has undoubtedly lent a hand to growth efforts.

For the most part, Total S.A. is fairly unlevered, as debt comprises roughly a quarter of the company’s capital structure. Short-term liquidity, marked by a decent level of cash, is worth noting, as well. All in all, stable prospects for growth over the long haul, coupled with strong financials make this a decent selection for investors looking to steer clear of riskier ventures. Lastly, TOT boasts an attractive dividend yield of 5.2%, which is well above the Value Line median, adding an element to the stock’s total return potential. 

Kraft Foods

One of the largest consumer packaged food and beverage companies in the North American region, Kraft Foods Group, manufactures and markets food and beverage products, which include refrigerated meals, coffee, cheese, and other grocery products. The company, now headquartered in Virginia, recently changed its name from “Kraft Foods Global” to “Kraft Foods Group”, subsequent to the spin-off from its parent company, Mondelez International on October 1, 2012. Kraft’s product portfolio, which has become a well-known household name over the past few decades, consists of Kraft cheeses, dinners, and dressing, and Oscar Mayer meats, along with various other brands.  Indeed, the aforementioned brands, categorized as cheese and dairy and meat and meat alternatives by the company, were the main contributors to 2012 annual revenues, 31% and 15%, respectively.  Kraft’s customers include a variety of retailers and wholesalers such as supermarket chains, club stores, convenience stores, and drug stores.

While Krafts’ operations are slightly more isolated than some of its international competitors’ (strictly Canada and United Sates), we believe the company still has a solid foothold on the domestic market place. Furthermore, free cash flow generation has been solid, owing to cost saving initiatives. The company has built up cash reserves, which are poised to be returned to shareholders in the form of dividends and possibly share buybacks. The board of directors recently raised the quarterly dividend payout by 5%, to $0.525. This equates to a 4% yield at the current quotation, well above that of the Value Line median. And although there does seem to be a bit of debt on the balance sheet, the company’s ability to generate a sufficient amount of income from operations leads us to believe it should have no problem meeting its current and future debt obligations. 

All things considered, Kraft Foods merits the attention of conservative accounts with a desire to bolster the income portion of their portfolios. What’s more, the stock holds our second-highest rank for Safety (2), along with a solid Financial Strength mark (A).

 

Company

Ticker

Dividend Yield

Market Cap $ (Mil)

AT&T Inc.

T

5.43

178,947.40

ConocoPhillips

COP

3.97

85,119.80

GlaxoSmithKline ADR

GSK

4.91

132,492.60

Lilly (Eli)

LLY

3.98

53,178.25

Lockheed Martin

LMT

3.94

44,332.98

Royal Dutch Shell 'A'

RDS/A

5.41

211,468.40

Sanofi ADR

SNY

3.83

132,615.40

Southern Co.

SO

5.17

35,445.95

Total ADR

TOT

5.57

127,754.30

Verizon Communic.

VZ

4.41

137,736.00

Altria Group

MO

5.16

74,325.59

AstraZeneca PLC (ADS)

AZN

4.96

70,418.09

Bank of Montreal

BMO.TO

4.42

44,770.23

Bank of Nova Scotia

BNS.TO

3.97

74,567.87

Brit. Amer Tobac. ADR

BTI

4.13

101,169.40

Can. Imperial Bank

CM.TO

4.33

36,217.58

Canon Inc. ADR

CAJ

4.18

36,727.92

Deutsche Telekom ADR

DTEGY

4.22

67,628.66

Duke Energy

DUK

4.62

48,142.14

Kinder Morgan Energy

KMP

7.1

34,526.88

Kinder Morgan Inc.

KMI

4.99

34,058.61

Kraft Foods Group

KRFT

3.97

31,539.51

Philip Morris Int'l

PM

4.41

137,030.80

Reynolds American

RAI

5.13

26,569.84

Royal Bank of Canada

RY.TO

4.02

98,416.98

TELUS Corporation

T.TO

4.07

23,736.63

TransCanada Corp.

TRP

4.23

30,688.65

Vodafone Group ADR

VOD

4.38

185,944.20

At the time of this article's writing, the author did not have positions in any of the companies mentioned.