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Protect Your Portfolio From Volatility With 3 Low-Beta Picks
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Wall Street has been grappling with volatility since the beginning of August. Although the overall movement of the market has continued to be northbound year to date after declining in 2022, volatility was rife in the last two months, resulting in market fluctuations.
The recent volatility in markets can be attributed to uncertainty related to future path of Fed rate hikes. Although the Fed paused rate hike in September, it continues to hover at decade high. Meanwhile, the rising crude oil price, ongoing Ukraine-Russia war and continued soft demand in China are raising the stakes for continued rate hike by the Fed as the agency tries to bring the inflation within 2%. Moreover, a declining consumer confidence index points to a looming recession.
At this juncture, it will be prudent to invest in low-beta (beta value less than one but greater than zero) stocks with a favorable Zacks Rank, as these will be less volatile than the broader market.
Labor Market Continues to Struggle
The labor market, which was the best-performing segment of the U.S. economy before the outbreak of coronavirus, suffered the most during the pandemic. Although most of the segments of the economy are showing signs of recovery (albeit at a slow pace), the labor market is still in jeopardy.
The number of actual initial claims under state programs, unadjusted, totaled 175,661 in the week ending Sep 16, indicating an increase of 67 (or 0.04%) from the previous week’s level. The weekly jobless claim in the week ending Sep 2, was 217,000, 13.6% higher than that recorded in the year-ago period. However, jobless claims have continued to decline after touching a high of more than 260,000 in June. We note that jobless claims may gain in the coming weeks as partial strike by the United Auto Workers could lead to temporary layoff of workers due to shortage of some materials.
Inflation Expectations
The annual inflation rate in the United States accelerated for a second straight month to 3.7% in August from 3.2% in July, above market forecasts of 3.6%. Oil prices have been on the rise in the previous two months, which has been held responsible for the high price inflation. Core inflation rate, however, excludes food and energy, which slowed for the fifth month to 4.3%, in line with market expectations.
With oil prices hovering around a 10-month high level, we expect future upward pressure on inflation.
Spike in Treasury Note Yields
The yield on the benchmark 10-year U.S. Treasury Note is around 4.65%, an all-time high for this decade. The yield on 30-year U.S. Treasury Note is hovering near 4.7%, its highest in the last 10 years.
A section of economists and financial experts, especially those who believe that the stock market is currently overvalued, has warned that further rise in government bond yields may trigger the exit button from risky equities to bonds.
Our Top Picks
We have narrowed down our search to three low-beta stocks with strong growth potential in the next six months and that have witnessed solid earnings estimate revision in the past 30 days. Moreover, one of these companies is a regular dividend payer, providing important income stream during market downturn. Each of our picks carry 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 three picks year to date.
Image Source: Zacks Investment Research
Alcon (ALC - Free Report) researches, develops, manufactures, distributes and sells a full suite of eye care products. The company has an expected earnings growth rate of 22.8% for the current year and 14.9% for long-term. The Zacks Consensus Estimate for ALC’s current year earnings has improved 4.2% over the past 60 days. This Zacks Rank #2 company has a beta of 0.89 and a dividend yield of 1.41%.
Dr. Reddy’s Laboratories (RDY - Free Report) is an integrated global pharmaceutical company engaged in providing affordable and innovative medicines. The company has an expected earnings growth rate of 14.9% for the current year and 9% for long-term. The Zacks Consensus Estimate for the RDY’s current year earnings has improved 4.1% over the past 60 days. This Zacks Rank #2 company has a beta of 0.54 and a dividend yield of 0.62%.
Anika Therapeutics (ANIK - Free Report) provides orthopedic therapies to improve degenerative orthopedic diseases and traumatic conditions along the continuum of care, from palliative pain management to regenerative cartilage repair.
The company’s earnings are expected to decline 21.6% in 2023. ANIK has an expected earnings growth rate of 33.5% for 2024. Its earnings are expected to improve 10% over the long-term. The Zacks Consensus Estimate for the company’s current year earnings has improved 12.1% over the past 60 days. This Zacks Rank #2 company has a beta of 0.78.
Image: Bigstock
Protect Your Portfolio From Volatility With 3 Low-Beta Picks
Wall Street has been grappling with volatility since the beginning of August. Although the overall movement of the market has continued to be northbound year to date after declining in 2022, volatility was rife in the last two months, resulting in market fluctuations.
The recent volatility in markets can be attributed to uncertainty related to future path of Fed rate hikes. Although the Fed paused rate hike in September, it continues to hover at decade high. Meanwhile, the rising crude oil price, ongoing Ukraine-Russia war and continued soft demand in China are raising the stakes for continued rate hike by the Fed as the agency tries to bring the inflation within 2%. Moreover, a declining consumer confidence index points to a looming recession.
At this juncture, it will be prudent to invest in low-beta (beta value less than one but greater than zero) stocks with a favorable Zacks Rank, as these will be less volatile than the broader market.
Labor Market Continues to Struggle
The labor market, which was the best-performing segment of the U.S. economy before the outbreak of coronavirus, suffered the most during the pandemic. Although most of the segments of the economy are showing signs of recovery (albeit at a slow pace), the labor market is still in jeopardy.
The number of actual initial claims under state programs, unadjusted, totaled 175,661 in the week ending Sep 16, indicating an increase of 67 (or 0.04%) from the previous week’s level. The weekly jobless claim in the week ending Sep 2, was 217,000, 13.6% higher than that recorded in the year-ago period. However, jobless claims have continued to decline after touching a high of more than 260,000 in June. We note that jobless claims may gain in the coming weeks as partial strike by the United Auto Workers could lead to temporary layoff of workers due to shortage of some materials.
Inflation Expectations
The annual inflation rate in the United States accelerated for a second straight month to 3.7% in August from 3.2% in July, above market forecasts of 3.6%. Oil prices have been on the rise in the previous two months, which has been held responsible for the high price inflation. Core inflation rate, however, excludes food and energy, which slowed for the fifth month to 4.3%, in line with market expectations.
With oil prices hovering around a 10-month high level, we expect future upward pressure on inflation.
Spike in Treasury Note Yields
The yield on the benchmark 10-year U.S. Treasury Note is around 4.65%, an all-time high for this decade. The yield on 30-year U.S. Treasury Note is hovering near 4.7%, its highest in the last 10 years.
A section of economists and financial experts, especially those who believe that the stock market is currently overvalued, has warned that further rise in government bond yields may trigger the exit button from risky equities to bonds.
Our Top Picks
We have narrowed down our search to three low-beta stocks with strong growth potential in the next six months and that have witnessed solid earnings estimate revision in the past 30 days. Moreover, one of these companies is a regular dividend payer, providing important income stream during market downturn. Each of our picks carry 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 three picks year to date.
Image Source: Zacks Investment Research
Alcon (ALC - Free Report) researches, develops, manufactures, distributes and sells a full suite of eye care products. The company has an expected earnings growth rate of 22.8% for the current year and 14.9% for long-term. The Zacks Consensus Estimate for ALC’s current year earnings has improved 4.2% over the past 60 days. This Zacks Rank #2 company has a beta of 0.89 and a dividend yield of 1.41%.
Alcon Price
Alcon price | Alcon Quote
Dr. Reddy’s Laboratories (RDY - Free Report) is an integrated global pharmaceutical company engaged in providing affordable and innovative medicines. The company has an expected earnings growth rate of 14.9% for the current year and 9% for long-term. The Zacks Consensus Estimate for the RDY’s current year earnings has improved 4.1% over the past 60 days. This Zacks Rank #2 company has a beta of 0.54 and a dividend yield of 0.62%.
Dr. Reddy's Laboratories Ltd Price
Dr. Reddy's Laboratories Ltd price | Dr. Reddy's Laboratories Ltd Quote
Anika Therapeutics (ANIK - Free Report) provides orthopedic therapies to improve degenerative orthopedic diseases and traumatic conditions along the continuum of care, from palliative pain management to regenerative cartilage repair.
The company’s earnings are expected to decline 21.6% in 2023. ANIK has an expected earnings growth rate of 33.5% for 2024. Its earnings are expected to improve 10% over the long-term. The Zacks Consensus Estimate for the company’s current year earnings has improved 12.1% over the past 60 days. This Zacks Rank #2 company has a beta of 0.78.
Anika Therapeutics Inc. Price
Anika Therapeutics Inc. price | Anika Therapeutics Inc. Quote