Back to top

Image: Bigstock

Top 5 Low-Beta High-Yielding Stocks to Counter Volatility

Read MoreHide Full Article

Wall Street is reeling under extreme volatility since the beginning of 2022. Investors are highly concerned about soaring inflation. Moreover, the uncertainty regarding the pace and magnitude of an interest rate hike by the Fed to contain inflation has injected severe fluctuations in day-to-day trading since mid-January.

The Fed has clearly indicated that it will raise interest rate in March, for the first time in three years. Consequently, market participants are uncertain about the direction of stock market movement in the near-term. At this stage, it will be prudent to invest in low-beta, high-dividend-paying stocks with a favorable Zacks Rank. Five such stocks are — Pfizer Inc. (PFE - Free Report) , Texas Instruments Inc. (TXN - Free Report) , Packaging Corporation of America (PKG - Free Report) , Atmos Energy Corp. (ATO - Free Report) and Crown Castle International Corp. (CCI - Free Report) .

A More Hawkish Fed

On Jan 26, after the conclusion of the first Fed FOMC meeting of this year, Chairman Jerome Powell signaled the first rate hike in three years as early as in March. The central bank’s quantitative easing program will also end in March.
Although the Fed refrained from stating the month and magnitude of the interest rate hike, Powell said, “Inflation risks are still to the upside in the views of most FOMC participants, and certainly in my view as well. There’s a risk that the high inflation we are seeing will be prolonged. There’s a risk that it will move even higher.”

The Fed Chairman further added, “In light of the remarkable progress we’ve seen in the labor market and inflation that is well-above our 2% long-run goal, the economy no longer needs sustained high levels of monetary policy support.”

In a separate press statement, the FOMC has also indicated that the Fed is thinking of shrinking its $9 trillion balance sheet later this year. Powell said, “There’s a substantial amount of shrinkage in the balance sheet to be done. That’s going to take some time. We want that process to be orderly and predictable.”

Wall Street Tumbles

On Feb 10, the Department of Commerce reported that the consumer price index (CPI) — popularly known as household inflation — jumped 7.5% year over year in January, marking its highest monthly gain since February 1982. The consensus estimate was 7.2%. The core CPI (excluding volatile food and energy items) climbed 6% year over year in January, its highest since August 1982. The consensus estimate was 5.9%.

As a result, the three major stock indexes – the Dow, the S&P and the Nasdaq Composite – tumbled 1.5%, 1.8% and 2.1%, respectively. Year to date, the Dow, the S&P 500 and the Nasdaq Composite are down 3%, 5.5% and 9.3%, respectively.

Following the release of CPI data, the yield on the benchmark 10-Year U.S. Treasury Note crossed the 2% threshold. The yield was 1.5% at the beginning of this year versus 0.9% at the beginning of 2021.

CNBC reported that per the data available from the CME interest rate future, there is currently almost a 100% probability of a 50-basis-point increase in the benchmark interest rate in March. Moreover, there is a 61% chance that the Fed will hike interest rate seven times this year.

Why Low-Beta High-Yielding Stocks?

At this stage, investment in low-beta stocks with a high dividend yield and a favorable Zacks Rank may be the best option. If the market’s northbound journey continues, the favorable Zacks Rank of these stocks will capture the upside potential. However, if markets take a downturn, low-beta stocks will minimize portfolio losses and dividend payment will act as a regular income stream.

Our Top Picks

We have narrowed our search to five large-cap (market capital > $10 billion) low-beta stocks with a solid dividend yield. These companies have strong growth potential for 2022 and have seen positive earnings estimate revisions in the last 30 days. 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 five picks in the past three months.

Zacks Investment ResearchImage Source: Zacks Investment Research

Pfizer expects strong growth in key brands like Ibrance, Inlyta and Eliquis to drive sales. PFE’s COVID-19 vaccine has become a key contributor to its top line. The approval of Paxlovid, Pfizer’s oral antiviral pill for COVID, will bring in additional revenues in 2022. PFE boasts a sustainable pipeline with multiple late-stage programs that can drive growth.

The Consumer Healthcare joint venture with Glaxo and the merger of the Upjohn unit with Mylan has made Pfizer a smaller company with a diversified portfolio of innovative drugs and vaccines. The smaller Pfizer should see better revenue growth.

The Zacks Rank #1 PFE has an expected earnings growth rate of 49.8% for the current year. The Zacks Consensus Estimate for current-year earnings improved 3.3% over the last 7 days. Pfizer has a current dividend yield of 3.11%.

Texas Instruments is benefiting from growth in the personal electronics market owing to the coronavirus-led work-from-home trend. Additionally, solid momentum across the Analog segment owing to robust signal chain and power product lines, is benefiting the top line of TXN.  

The continued rebound in the automotive market is a tailwind for Texas Instruments. Solid growth in the industrial market is another positive for TXN. Strategic investments in new growth avenues and competitive advantages should also reap results in the long term. TXN’s portfolio of long-lived products and efficient manufacturing strategies are the other catalysts.

Zacks Rank #1 Texas Instruments has an expected earnings growth rate of 10.1% for the current year. The Zacks Consensus Estimate for current-year earnings improved 10.6% over the last 30 days. TXN has a current dividend yield of 2.60%.

Packaging Corporation of America manufactures and sells containerboard and corrugated packaging products in the United States. PKG continues to benefit from robust packaging demand backed by e-commerce and rising requirement for the packaging of food, beverages and medicines.

PKG’s Packaging segment will benefit from higher corrugated products shipments with three additional shipping days. For the Paper segment, the company expects higher prices and mix. Packaging Corporation of America continues to implement price hikes that will help offset the impact of high operating costs, freight expenses and supply chain issues on margins.

Zacks Rank #1 Packaging Corporation of America has an expected earnings growth rate of 11.5% for the current year. The Zacks Consensus Estimate for current-year earnings improved 10.4% over the last 30 days. PKG has a current dividend yield of 2.65%.

Atmos Energy continues to benefit from demand rising from its expanding customer base.  ATO is planning to invest in the range of $13-$16 billion in the fiscal 2022-2026 time period to increase the reliability of its pipelines and serve customers efficiently. Returns within a year of capital investment continue to boost Atmos Energy’s performance and allow it to pay regular dividends. ATO has enough liquidity to meet near-term debt obligations.

The Zacks Rank #2 Atmos Energy has an expected earnings growth rate of 7.8% for the current year (ended September 2022). The Zacks Consensus Estimate for current-year earnings improved 0.9% over the last 30 days. ATO has a current dividend yield of 2.50%.

Crown Castle is a leading independent operator of wireless communication towers in the United States. An increase in mobile data usage, spectrum availability and high network investments by wireless carriers to deploy 5G networks are anticipated to spur demand for CCI’s towers.

Capitalizing on these, Crown Castle is well poised to grow. Additionally, the recent trend in estimate revisions for first-quarter 2022 funds from operations per share indicates a favorable outlook for CCI.

The Zacks Rank #2 Crown Castle has an expected earnings growth rate of 6.2% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.1% over the last 30 days. CCI has a current dividend yield of 3.27%.

Published in