The recent market action has left plenty of investors unsettled. With invasions, possible war, and a resurgence of COVID-19 in China emerging, it’s easy to be unsettled. Many investors, therefore, are looking for safer havens to park their money.
While haven assets are proving to be winners, like gold and some government bonds, some stocks are proving valuable as well. American Electric Power (AEP), a major retail energy provider, and HCA Healthcare (HCA), a chain of clinics and hospitals with over 2,000 sites of care, are proving particular winners herein.
I, meanwhile, am bullish on AEP, but neutral on HCA.
AEP spent much of the last 12 months in a fairly tight pattern between $80 and $90 per share. Late February, however, brought with it a significant upward surge that let it surpass $90 and challenge the $100 per share mark. Meanwhile, HCA has been trending steadily upward for the last year. It’s climbed from around $190 this time last year to approach $265 today.
Both companies have seen significant upward trends during—and potentially due to—a season of growing global uncertainty. Due to this uncertainty, there has been a clear upward trend in the spot price of gold in the past month that’s only recently started to retract.
Meanwhile, AEP has gained 10.6% in the last 30 days, while HCA has gained 12.6% in the same period.
Wall Street’s Take
Turning to Wall Street, both AEP and HCA have a Strong Buy consensus rating. AEP’s rating is based on seven Buys and one Hold assigned in the past three months. Meanwhile, HCA’s rating is based on 11 Buys and three Holds assigned in the same time frame.
The average American Electric Power price target of $100.63 implies 5.4% upside potential. Analyst price targets for AEP stock range from a low of $94 per share to a high of $106 per share.
As for the average HCA Healthcare price target, that stands at $285.08, which implies 7.4% upside potential. Price targets for HCA range from a low of $250 per share to a high of $310 per share.
Hedge Funds and Dividend Histories at Odds for a Winner
Both HCA and AEP have made substantial advances in share price over the last 12 months, particularly in the last month. However, based on the TipRanks 13-F tracker, the hedge funds are putting their money clearly in one direction over the other. AEP has advanced with the hedge funds, as holdings were increased by 47,800 shares in the last quarter.
HCA, meanwhile, not only saw hedge funds divest one million shares last quarter, but also continued a string of declines that have been in progress since July 2020. AEP has been bucking a trend of declines that started back in September 2020 and lasted until March 2021. Since March 2021, hedge funds have been steadily adding to their AEP holdings.
As for dividends, AEP’s dividend history has been steadily rising for over a decade. The rise has been especially gradual, adding just $0.11 cents per share over roughly the last three years.
Meanwhile, HCA’s dividend has been climbing much more rapidly, though just as regularly. HCA’s dividend history shows a lot more spark. It has nearly doubled in the last four years. The dividend has surged from $0.35 per share in August 2018 to $0.56 per share in March 2022.
However, it’s also worth noting an uncomfortable similarity between the two. Both have seen insiders selling shares in the last three months. Insiders sold $1.2 million in shares of AEP, while HCA insiders sold $7.4 million. With HCA shares worth roughly three times AEP shares, that’s a much wider gap than a simple averaging would suggest.
Seeking Safety in Uncertain Times
Seeking safety—or at least what looks like safety—in uncertain times is a natural impulse. While risk tolerance is different for everyone, no one waves steel poles around in thunderstorms. Certainly, some stocks are riskier than others.
Both Alibaba (BABA) and JD.com (JD) took big hits recently. Growing COVID-19 case counts in Shenzhen, as well as new fears about market delistings, gave investors pause.
Seeing AEP and HCA rise as a result of investors looking for safety isn’t a surprise either. Both are well-regarded stocks with solid dividend histories that operate in markets that should be stable and largely recession-proof. AEP is perhaps more recession-proof than HCA, however.
During the lockdowns, we saw what happened to healthcare businesses no longer allowed to freely schedule surgeries. We also saw that there wasn’t even a single dip in power supply as power was declared “essential” business from the get-go.
In fact, of the two, AEP looks slightly safer than HCA, thanks to its better favoring among the hedge funds. However, thanks to its improved dividend, HCA rewards a slightly higher risk here. Some have even already suggested that AEP will come with a solid upside. Projections suggest just over 5% upside based on price targets.
It’s also worth noting that the primary cause of safety-seeking in this market, the Russian invasion of Ukraine, may not be a factor in the not-too-distant future. Reports suggest that “hard” talks are already going on. Both security guarantees and immediate troop withdrawals are part of the discussions. That suggests the talks are fairly far along.
Concluding Views
Security is a vital part of investing. Not everyone has a particularly high level of risk tolerance. A June 2021 study found that young investors aged 18 to 24 were more risk-averse since the pandemic started. Thus, seeing investor sentiment increasingly pour into “safe” assets like precious metals, government bonds, and recession-proof industries is perfectly valid.
Of the two, AEP would seem to be the safer buy here. It’s got much slower growth and kept its dividend stable with minor gains. Hedge funds and insiders seem much happier about it as well. HCA is a slightly greater risk but still well within tolerances, and it may also have a little more upside room to run.
However, overall, I am more bullish on AEP due to the factors mentioned above.
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