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Protect Your Portfolio From Volatility With 6 Low-Beta Picks

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Stock markets have been grappling with extreme volatility this month. After five months in a row, the Wall Street is facing a severe hurdle this month.

The Nasdaq Composite is in correction territory after declining 11.8% from its high recorded on Sep 2. The S&P 500 and the Dow are on the verge of entering correction territory after declining 9.6% and 9.3% from their respective high recorded on Sep 2 and Feb 12. 

Besides the above-mentioned three large-cap centric indexes, small-cap specific Russell 2000 and S&P 600 and mid-cap benchmark S&P 400 have also plummeted in September. Moreover, all 11 broad sectors of the S&P 500 Index have declined so far this month. These facts clearly indicate that the recent meltdown is broad based.

The stock-market volatility is likely to continue in the days to come. This is evident from the COBE VIX reading  — popularly known as the best fear-gauge of Wall Street. In a nutshell, the VIX indicates market's expectation of a 30-day forward-looking volatility based on the near-term S&P 500 Index options (both puts and calls).

Notably, VIX is currently hovering in the range of 29 to 31 while it was in the range of 21 to 23 in mid-August. At its current level, the fear gauge is well above its last year's average range of 12 to 15. This clearly indicates that the market will remain volatile and stocks will swing widely in either direction in the near future.  

At this juncture, it will be prudent to invest in low-beta (beta value less than 1 but greater than zero) stocks with a favorable Zacks Rank as these will be less volatile than the broader market.

Sources of Near-Term Volatility

First, resurgence of coronavirus in several major European countries like the U.K., Spain and France has significantly dented investors' confidence. Authorities of London and Madrid are considering total lockdowns once again to curb the spread of COVID-19. Moreover, Texas, Wisconsin, Oklahoma and Colorado in the United States also witnessed a spike in COVID-19 new cases though the Trump administration has categorically denied any scope of further lockdowns.

Second, conflicting news are appearing on the coronavirus treatment front. On Sep 16, President Trump said that his administration is planning to distribute vaccine for COVID-19 from mid-October or a little later. However, earlier that day, Dr. Robert Redfield, the Director of Centers for Disease Control and Prevention told Congress under oath that a vaccine may not be available to the general public until next year.

Third, a delay in the second round of fiscal stimulus has started showing its effects on the U.S. economy. Market participants are concerned that the pace of economic recovery might slow down. The Fed has already warned that it will be difficult for the U.S. economy to keep momentum intact without adequate fiscal stimulus.

Fourth, the U.S. presidential election is scheduled on Nov 3. Historically, stock markets remain volatile in the last two months before the election. Market participants generally opt to hold cash instead of investing in risky assets like equities while assessing economic and financial consequences of the presidential election.

Our Top Picks

We have narrowed down our search to six low-beta stocks with market capital > $50 billion. These companies have well established business model, robust liquidity and recognized brand name. Shares of these companies have declined less than the benchmark S&P 500 Index so far in this month.

These stocks have both short-term and long-term (3-5 years) growth potential and have witnessed solid earnings estimate revisions in the past 60 days, indicating near-term business prospects. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our six picks in September.

 

Target Corp. (TGT - Free Report) operates as a general merchandise retailer in the United States. It offers beauty and household essentials, food assortments, including perishables, dry grocery, dairy, and frozen items, and apparel, accessories, home décor products, electronics, toys, seasonal offerings, and other merchandise.

This Zacks Rank #1 company’s expected earnings growth rate for the current year (ending January 2021) is 11.9%. It has a long-term growth rate of 7.2%. The Zacks Consensus Estimate for the current year has improved 44.2% over the past 60 days. The stock has a beta of 0.87.

Deere & Co. (DE - Free Report) manufactures and distributes farm equipment worldwide. The company operates through three segments: Agriculture and Turf, Construction and Forestry, and Financial Services.

Although, the company's current-year (ending October 2020) expected earnings growth rate is negative, it has an estimated earnings growth of 36% for the next year. The Zacks Consensus Estimate for the current-year and next year has improved 7.4% and 10.3%, respectively in the past 30 days. This Zacks Rank #1 company has a long-term growth rate of 8.2%. The stock has a beta of 0.99.

Danaher Corp. (DHR - Free Report) designs, manufactures, and markets professional, medical, industrial, and commercial products and services worldwide. It operates through three segments; Life Sciences, Diagnostics, and Environmental & Applied Solutions.

This Zacks Rank #2 company’s expected earnings growth rate for the current year is 23.8%. It has a long-term growth rate of 11.6%. The Zacks Consensus Estimate for the current year has improved 3.4% over the past 60 days. The stock has a beta of 0.91.

United Parcel Service Inc. (UPS - Free Report) provides letter and package delivery, specialized transportation, logistics, and financial services. It operates through three segments: U.S. Domestic Package, International Package, and Supply Chain & Freight.

Although, the company's current-year (ending October 2020) expected earnings growth rate is negative, it has an estimated earnings growth of 12.2% for the next year. The Zacks Consensus Estimate for the current-year and next year has improved 2.1% and 0.9%, respectively in the past 60 days. The Zacks rank #2 company has a long-term growth rate of 7.8%. The stock has a beta of 0.99.

Walmart Inc. (WMT - Free Report) operates retail stores, restaurants, discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, apparel stores, Sam’s Clubs, and NeighborhoodMarkets, as well as the websites, walmart.com and samsclub.com.

This Zacks Rank #2 company’s expected earnings growth rate for the current year (ending January 2021) is 8.5%. It has a long-term growth rate of 5.6%. The Zacks Consensus Estimate for the current year has improved 1.3% over the past seven days. The stock has a beta of 0.28.

Activision Blizzard Inc. (ATVI - Free Report) develops and distributes content and services on video game consoles, personal computers and mobile devices. It operates through three segments: Activision Publishing Inc., Blizzard Entertainment Inc., and King Digital Entertainment.

This Zacks Rank #2 company’s expected earnings growth rate for the current year is 43.6%. It has a long term-growth rate of 16%. The Zacks Consensus Estimate for the current year has improved 0.3% over the past 7 days. The stock has a beta of 0.68.

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