In retirement, stability and downside protection are the main investment objectives. You need retirement-proof stocks that guarantee stable growth with minimal volatility to succeed. Otherwise, picking unstable stocks might expose your portfolio to extreme gyrations and in some cases, steep losses.
Therefore, as you consider your retirement funds, it is of utmost importance to review your portfolio comprehensively. While growth stocks can provide excellent gains, they can also lead to extreme drawdowns. Obviously, no one wants to see their portfolio decline by 50% in retirement. To mitigate these risks, buy retirement-proof stocks like the three discussed below.
The following stocks have a beta below 0.5, hence their lower volatility. Furthermore, due to the necessity of their products and services, they guarantee earnings stability even during weak economic cycles. Another differentiator is their large-cap status, which eliminates the volatility associated with smaller capitalization stocks. Increase the defensive strength of your portfolio with these retirement-proof stocks.
McKesson (MCK)
McKesson (NYSE:MCK) is a critical cog in the U.S. healthcare system and guarantees earning stability in any environment. It’s the largest pharmaceutical distributor to hospitals, retail drug stores and physicians’ offices.
MCK offers stability of earnings, so it’s among the retirement-proof stocks to buy. Furthermore, it operates in an oligopoly with only two major competitors. Those include Cencora (NYSE:COR) and Cardinal Health (NYSE:CAH). Together, the three account for 95% of the total U.S. drug distribution market.
With limited competition, the company has consistently grown revenues and earnings. Over the past five years, revenues have compounded at a 7.5% annual rate, which has been a huge driver of operating profit and free cash flow. On that note, it has utilized the cash flow generated, shrinking share count by over 25% over that period.
Considering the tailwinds for its fast-growing specialty drug and oncology business, McKesson can achieve mid-single-digit revenue growth going forward. Moreover, GLP-1 demand, an aging population and growing healthcare access are other trends that will boost revenues.
Taken together, the mid-single-digit sales growth and consistent buybacks can deliver mid-teens EPS annually. Thus, MCK stock is a bargain at 15 times forward earnings. Lastly, with a beta of 0.47, MCK stock is half as volatile as the market.
T-Mobile US (TMUS)
Wireless carriers like T-Mobile US (NASDAQ:TMUS) are some of the best retirement-proof stocks you can own. Today, internet services are a must-have for businesses and households. As a major player, it will profit as internet users in the U.S. increase to 343 million by 2029.
Regarding earnings stability, the structure of the U.S. cellular and wireless carrier market is an oligopoly. T-Mobile US merged with Sprint in 2020, consolidating the industry. And on May 1, TMUS acquired Ka’ena Corporation, owner of Mint Mobil, Ultra Mobile and Plum, in a $1.3 billion deal. Today, T-Mobile US dominates the industry alongside Verizon Communications (NYSE:VZ) and AT&T (NYSE:T). The three account for 98% of the market.
After spending billions upgrading its 5G Network, T-Mobile US is the fastest-growing wireless carrier due to its fast and reliable network. In Q1, postpaid wireless service growth was 6.5%, and EBITDA increased by 8%. Besides the growth, the company has expanded its market share in the core wireless business.
While the company has cemented its leadership in the top 100 urban markets, smaller rural areas and towns present opportunities. Wells Fargo’s analysts note that the planned acquisition of United States Cellular (NYSE:USM) will enable T-Mobile US to grow its rural market share from 17.5% currently to the 35-40% it has in core urban markets. All together, TMUS stock offers stability due to the oligopolistic wireless market sprinkled with growth from rural market expansion.
Northrop Grumman (NOC)
In light of the murky geopolitical landscape, defense stocks are one of the best ways to risk-proof your portfolio. After all, the heightened defensive spending from the U.S. government and allies means more profits for stalwarts like Northrop Grumman (NYSE:NOC).
Without question, Northrop is one of the major defensive contractors. It supplies various aeronautics, defense and mission systems to the U.S. Air Force, the U.S. Navy and international customers. Its strategic long-range strike aircraft, tactical fighters, missile defense solutions, and command, control and reconnaissance capabilities are critical, especially in a volatile geopolitical landscape.
This defense company is on the retirement-proof stocks list for a key reason. Its revenues are highly insulated since a significant portion comes from the U.S. government. In 2023, revenues from the U.S. government accounted for 86% of total sales. Furthermore, due to the long development cycles, most revenues are protected by long-term contracts.
Besides, the company has a history of returning excess cash to shareholders. In Q1 of 2024, it continued this trend, returning $1.5 billion through share repurchases and dividends. It’s no surprise that Northrop has a 1.8% dividend and a 20-year dividend growth record that could be handy in retirement.
On the date of publication, Charles Munyi did not hold (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 InvestorPlace.com Publishing Guidelines.