Stable, outperforming stocks with upside to navigate market volatility
3 min readFears are mounting that the U.S. Federal Reserve and other central banks will continue with their pace of interest rate hikes to quash inflation — even at the expense of economic growth. That has weighed heavily on the stock market, with all of the major averages on track to finish the week lower. On Thursday, the tech-heavy Nasdaq Composite closed down lower to notch its fifth straight day of declines, while the Dow Jones Industrial Average and the S & P 500 eked out narrow gains to snapped a four-day losing streak. And there could be more pain ahead as the stock market now enters into what has traditionally been a “seasonally weak” period for equities . Low-volatility stocks Investors looking to rotate into safer bets could find solace in a portfolio of stable stocks that have outperformed the market. CNBC PRO used FactSet data to screen for low-volatility MSCI World stocks that are up for the year — and could still go higher These stocks have a three-year historical beta of less than 1. “Beta” is a measure of volatility : a beta of under 1 means the stock will be less volatile than the market, whereas a beta of over 1 indicates its price will be more volatile than the market. The list is then whittled down to include only stocks that are in positive territory this year. They are also buy-rated by the majority of analysts, with average potential upside of at least 10% over the next 12 months, according to FactSet data. Utilities Several utility stocks turned up on the screen. The sector is viewed as a safe harbor in periods of market upheaval, given its steady and regulated earnings, as well as higher dividend income relative to other sectors. Utilities have outperformed every other sector on the MSCI World this year, apart from the energy sector, which has been the best performer by far. Japan’s Tokyo Gas and Kansai Electric were among the utility names that made the screen, with historical beta of 0.1 and 0.3 respectively. California-based Sempra and Germany’s RWE appeared on the list too. Health care and other sectors A quarter of the 53 names on the screen were health care stocks. The sector is seen as a safe bet when markets turn volatile, given its typically strong free cash flow and dividend payouts. British-Swedish pharma giant AstraZeneca has the lowest historical beta in the group, at just 0.2. The stock has rallied nearly 30% this year, but analysts think it still has upside of 26.4%. Illinois-based AbbVie and Indiana-based Eli Lilly made the list too, with historical beta of 0.7 and 0.4, respectively. Insurance firm Elevance Health also turned up on the screen, albeit with a historical beta of 1.0. The stock was one of the most added stocks by mutual funds in the second quarter, according to Goldman Sachs. A number of consumer staples, largely comprising food and tobacco companies, also made the list. Within the group, Japan’s Nissin Foods — best known for its instant noodles — has the lowest historical beta of 0. The stock has gained nearly 20% this year, but analysts think it could still rally 26%. Other food companies include Ajinomoto and George Weston , with historical beta of 0.1 and 0.3, respectively. Two tobacco companies turn up on the screen: British American Tobacco and Imperial Brands . Both stocks have historical beta of 0.8 and potential upside of around 15%. Car parts and equipment retailer AutoZone also appeared on the list. The company has historically outperformed during bear markets which could explain why analysts are so bullish on the stock, with an average potential upside of 34.7%. The screen also uncovered several financial stocks, such as insurers Tokio Marine , MS & AD Insurance and W.R. Berkley, as well as bourse operator Deutsche Boerse .
