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5 Low-Beta Stocks to Buy to Counter Severe Market Volatility

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Wall Street has been grappling with volatility over the last four trading days as a result of the coronavirus outbreak taking the shape of a global pandemic. The deadly virus has so far infected 82,000 people and claimed lives of 2,700 in China. Notably, 36 countries have reported coronavirus cases so far. In fact, Italy, South Korea, Japan and Iran have been impacted severely and are on high alert.

In the United States, the Centers for Disease Control and Prevention has warned that Americans of the possibility of virus-led disruptions. It has also called for preparedness should the need arise, although the current threat remains low. Following the news, investors went into overdrive fearing global economic slowdown.

Wall Street Plunges

In the first two days of trading of this week, the Dow has shed 6.59%, marking its worst 2-day drop for the index since February 2018. The S&P 500 tumbled 6.28% — highlighting the worst decline for two consecutive days since August 2015. Likewise, the Nasdaq Composite declined 6.38% — the worst decline for two successive days since June 2016.

For the last five trading days — the Dow, the S&P 500 and the Nasdaq Composite — declined 7.4%, 7.2% and 7.9%, respectively. Year to date, all three indexes have entered the negative category with a loss of 5.1%, 3.2% and 0.1%, respectively.

In the past two days of trading, the S&P 500 has lost market value worth $1.737 trillion. In each of the first two trading days of this week, all 30 stocks of the Dow lost value while all 11 sectors of the S&P 500 lost value.

Meanwhile, the Dow is 8.4% away from its all-time high recorded in Feb. 12. The S&P 500 and the Nasdaq Composite are 7.6% and 8.6% away, respectively, from their all-time highs recorded on Feb 19. A decline of 10% or more from their latest highs will place these indexes in the correction mode.

Volatility Indexes Spike

Severe volatility has gripped U.S. stock markets in the last four trading sessions. On Fed 25, The CBOE VIX — which reflects S&P 500 option bets to calculate expectations for volatility over the coming 30 days — jumped 11.3% to close at 27.85. This was the volatility index’s highest close in 14 months.

During the intraday trading, the VIX recorded a new 52-week high at 30.25. The volatility index climbed 63% in the first two trading days of this week. Notably, the VIX is popularly recognized as Wall Street’s best fear gauge.

However, the VIX had declined to below 12 late November 2019 and was hovering around 12 to 13 until late January 2020. Moreover, CNN Money’s Fear & Greed Index, which reached 96 out of 100 in January, plunged to 29 on Feb 24.

Our Top Picks

U.S. stock markets are likely to remain choppy in the near term barring optimistic news regarding the outbreak or some major economic data. At this juncture, it will be prudent to invest in low-beta (beta value less than 1 but greater than zero) stocks as these stocks will be less volatile than the broader market.

However, the selection process may be difficult. This is where our VGM Score comes in handy. We have narrowed down our search to five such stocks, each carries a Zacks Rank #1 (Strong Buy) and VGM Score of A. 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.

 

PulteGroup Inc. (PHM - Free Report) is primarily engaged in the homebuilding business in the United States. It acquires and develops land primarily for residential purposes and constructs housing on such land. The company has an expected earnings growth rate of 18.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 6.2% over the past 30 days. The stock has a beta of 0.56.

La-Z-Boy Inc. (LZB - Free Report) manufactures, markets, imports, exports, distributes and retails upholstery furniture products, accessories and casegoods furniture products in the United States, Canada, and internationally. It operates through Upholstery, Casegoods and Retail segments. The company has an expected earnings growth rate of 10.3% for the current year (ending April 2020). The Zacks Consensus Estimate for the current year has improved by 4.4% over the past 30 days. The stock has a beta of 0.68.

Sunoco LP (SUN - Free Report) is engaged in distribution and retailing of motor fuels in the United States. It operates through two segments: Fuel Distribution and Marketing, and All Other. The company has an expected earnings growth rate of 12.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.9% over the past 30 days. The stock has a beta of 0.80.

US Foods Holding Corp. (USFD - Free Report) markets and distributes fresh, frozen, and dry food and non-food products to foodservice customers in the United States. The company has an expected earnings growth rate of 13.9% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.8% over the past 30 days. The stock has a beta of 0.49.

Vista Outdoor Inc. (VSTO - Free Report) designs, manufactures, and markets consumer products for outdoor sports and recreation markets in the United States and internationally. The company operates through Outdoor Products and Shooting Sports segments. The company has an expected earnings growth rate of 42.9% for the current year (ending March 2020). The Zacks Consensus Estimate for the current year has improved by 25% over the past 30 days. The stock has a beta of 0.54.

Zacks Top 10 Stocks for 2020

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