The S&P 500 has returned 249% since 2009’s Financial Crisis lows and the stock market is now in its ninth year of steady gains. While it is unlikely that investors will see the same level of returns over the next ten years, many investment advisers remain bullish on stocks in the near term. However, the bullish outlook does not come without caveats and volatility can be a major factor that detracts investors from the equity market, especially as liquid cash rates rise through the Fed’s period of monetary policy tightening. Overall low volatility stocks can be a great way for cautious investors to invest in equities while still balancing some of the risk optimization considerations between cash investments.
Stocks that are less volatile are considered less risky than those trading at more extreme highs and lows. Investors who fear volatility, high daily fluctuations in investment value, unexpected short-term losses or a market crash often include low-volatility stocks in their portfolios because the stocks are less likely to experience high levels of short-term losses or to be influenced by broader market declines. Conservative investors may also choose low volatility stock allocations to optimize their over portfolio exposure.
One of the key ways to calculate and consider a stock’s volatility is to use its beta, which compares movement of the shares against the S&P 500. Stocks with a beta near 1.0 trade with about the same volatility as the broader stock market. Stocks with a beta above 1.0 will generally experience greater gains and losses than the S&P 500’s movement while those that have a beta below 1.0 are safer in down markets but also gain less in up markets.
Investors seeking low volatility stocks have a wide array of options, including many of the big-name stocks that also come with value and income characteristics. The 30 blue-chip stocks in the Dow Jones Industrial Average tend to be more stable companies because they are more established. This index can be a great place to start for low volatility investors. Within the Dow, the following four stocks have had the least volatility over the past three years as measured by their beta as of October 9, 2018.
Wal-Mart Stores Inc. (WMT)
Wal-Mart has the lowest beta in the Dow Jones at 0.26. Its shares are up 15% on an annualized basis for the three-year period. The stock also pays an annual dividend of 2.20%.
Wal-Mart has been recognized as a top retailer performing well in the e-commerce race as an array of emerging trends shake up the industry. In its second quarter of the 2019 fiscal year it reported total sales revenue of $128 billion with a revenue increase of 3.8% from the second quarter of 2018.
Procter & Gamble Co. (PG)
Procter & Gamble is known for its manufacturing of household products like Crest toothpaste and Pampers diapers. The company has a beta of 0.32. Its shares are down -8.01% year-to-date (YTD) but it reports a 5% three-year annualized return.
The company has been the target of activist investor Nelson Peltz from Trian Partners which has affected its stock price. In the company’s third quarter 2018 earnings it beat expectations for revenue and earnings with revenue reporting a year over year gain of 4.3%.
Johnson & Johnson (JNJ)
Johnson & Johnson is one of the market’s largest drug manufacturers. The company has a beta of 0.53. Its YTD return is 1.65% with a one-year return of 7.24% and a three-year annualized return of 16.22%.
The company has three main business segments, Consumer, Pharmaceutical and Medical Devices, which all operate in the United States and internationally. Worldwide the company is reporting an 8.6% revenue growth rate in 2018 with Pharmaceuticals leading in sales growth. Net earnings are also up 12.9%.
Coca-Cola is one of the world’s largest beverage providers with sales built around the well-known Coca-Cola brand. The company also has a beta of 0.53. Its YTD return is 3.86% with a three-year annualized return of 6.61%. The company continues to see high demand for its leading market products. Products leading volume growth include its trademark Coca-Cola products as well as Coca-Cola Zero Sugar and Fuze Tea.