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Top 5 High-Flying Low-Beta Stocks to Counter Market Volatility

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U.S. stock markets declined in the last two trading sessions on several near-term concerns. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — declined 1.87%, 1.78% and 1.82%, respectively. Wall Street is likely to remain volatile in the near future despite the fact that the fundamentals of the U.S. economy are solid and the overall trend of the market encouraging.

Near-Term Concerns

The resurgence of the highly-infectious Delta strain of coronavirus raised questions about the pace of global economic recovery. In the United States, new cases are jumping significantly. Asian majors like Japan, China and India are also witnessing the spread of the Delta variant.

U.S. retail sales declined 1.1% in July. Analysts had expected a decline of 0.3%, which came as a big disappointment. Excluding autos, core retail sales were down 0.4%. The resurgence of the Delta variant and gradual fading out of stimulus money are the primary reasons for a sharp decline in retail sales. Notably, retail sales are major part of consumer spending, the largest driver of the U.S. GDP.

Moreover, data showed that China’s economic growth slowed more than expected. China’s retail sales increased 8.5% in July on a year-over-year basis, lower than analysts’ expectations of 11.5%.

The University of Michigan consumer-sentiment index declined sharply in early August to 70.2% compared with 81.2% in July due to growing cases of coronavirus in the United States. This is the lowest level since April 2020 or since the onset of the pandemic.

According to a survey for The Wall Street Journal by Vistage Worldwide Inc., in August, out of a group of more than 560 U.S. small-businesses, 39% expect economic conditions to improve in the next 12 months, down from 50% in July and 67% in March. Moody's Analytics weekly business confidence index of Aug 13 also reflects the dampened mood on part of businesses.  

The July FOMC meeting minutes of the Fed revealed that an increasing number of its officials are advocating tapering of the central bank's existing $120 billion per month bond-buying program as early as October. However, the Fed is yet to take a formal decision. A reduction of the quantitative program will raise market interest rate.

Near-Term Drivers

U.S. businesses of all sizes are expanding their scale of operations and hiring more despite soaring wages and salaries to cater to robust demand. The personal savings of Americans are around an astonishing $2 trillion. The sky-high savings are allowing people to fulfill their demands that were pent up during lockdowns and in turn compelling businesses to expand their scale of operations.

On Aug 10, the U.S. Senate passed a bipartisan infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years. Total spending may go up to $1.2 trillion if the plan is extended to eight years. Infrastructure projects such as roads, bridges, passenger rails, airports, drinking water and waste-water systems, high-speed Internet, and climate-related infrastructure will benefit. The bill is now headed to the House of Representatives for discussions and vote.

The U.S. economy grew 6.3% and 6.5% in the first and the second quarter of 2021, respectively. Moreover, in absolute terms, U.S. GDP in second-quarter 2021 exceeded the pre-pandemic level. Per the estimate projected by several globally renowned financial agencies and investment bankers, the U.S. economy is expected to grow 6.5-7% on average in 2021.

Our Top Picks

At this stage, it will be prudent to invest in low-beta stocks with a favorable Zacks Rank that have performed impressively in the past three months and are expected to maintain the momentum for the rest of 2021. We have narrowed down our search to five such large-cap (market capital > $10 billion) stocks that saw positive earnings estimate revisions in the past 30 days.

These stocks provided higher returns than the market's benchmark, the S&P 500 Index, in the past three months. Moreover, these companies are regular dividend payers providing an important income stream during a market downturn. Finally, each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The chart below shows the price performance of our five picks in the past three months.

Zacks Investment Research
Image Source: Zacks Investment Research

Nasdaq Inc. (NDAQ - Free Report) is a leading provider of trading, clearing, marketplace technology, regulatory, securities listing, information and public and private company services. Nasdaq has grown over the years through a number of strategic expansions. These acquisitions have helped the company gain direct access to the Canadian equities market, expand its technology offering, fortify its Corporate Solutions business and improve market surveillance techniques.

The company has an expected earnings growth rate of 18.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.7% over the past 30 days. The stock has a beta of 0.83 and a dividend yield of 1.5%. The stock price has jumped 16.1% in the past three months.

Paychex Inc. (PAYX - Free Report) provides integrated human capital management solutions for human resources, payroll, benefits, and insurance services for small to medium-sized businesses in the United States and Europe. Acquisitions have expanded its customer base and generated cost and revenue synergies. The company strives to capitalize on the rising opportunities in the professional employer organization industry.

The company has an expected earnings growth rate of 10.9% for the current year (ending May 2022). The Zacks Consensus Estimate for current-year earnings has improved 5% over the past 60 days. The stock has a beta of 0.91 and a dividend yield of 2.3%. The stock price has climbed 16% in the past three months.

Marsh & McLennan Companies Inc. (MMC - Free Report) is a professional services company that provides advice and solutions to its clients in the areas of risk, strategy, and people worldwide. The company operates in two segments, Risk and Insurance Services, and Consulting. Its operating performance has been favorable for the past many years, driven by its diverse product offerings, a wide geographic footprint and strong client retention.

The company has an expected earnings growth rate of 22.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 7.1% over the past 30 days. The stock has a beta of 0.94 and a dividend yield of 1.4%. The stock price has rallied 13.9% in the past three months.

Chubb Ltd. (CB - Free Report) is one of the world’s largest providers of property and casualty insurance and reinsurance company.  It benefits from a suite of compelling products and services. Chubb is focusing on capitalizing on the potential of middle-market businesses. Several distribution agreements have expanded its network, boosting market presence.

The company has an expected earnings growth rate of 70.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 8.8% over the past 30 days. The stock has a beta of 0.72 and a dividend yield of 1.7%. The stock price has advanced 11% in the past three months.

Republic Services Inc. (RSG - Free Report) provides non-hazardous solid waste collection, transfer, recycling, disposal and energy services for small-container, large-container, municipal and residential and energy services customers in the United States and Puerto Rico.

The company is focused on increasing its operational efficiency by shifting to compressed natural gas collection vehicles and converting rear-loading trucks to automated-side loaders to reduce costs. It continues to grow internally with the help of long-term contracts for collection, recycling and disposal of solid waste materials.

The company has an expected earnings growth rate of 13.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.2% over the past 30 days. The stock has a beta of 0.71 and a dividend yield of 1.4%. The stock price has risen 10.3% in the past three months.