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3 Low-Beta Stocks That Shield Investors From Volatility

·5 min read

Volatility has headlined the market following the Fed’s Jackson Hole Economic Symposium. Fed Chairman, Jerome Powell, was rather hawkish in his comments.

Powell believes bringing inflation down will take some time, adding that the plan will, unfortunately, “bring some pain to households and businesses.”

Needless to say, the market didn’t react well to the comments, as they essentially crushed any hopes that the Fed would soon reverse its rate-hike trajectory.

Pairing these remarks with the fact that we’re about to break into September, a historically weak month in the market, gives investors plenty of valid reasons to consider a defense-first approach.

For investors looking to shield themselves against volatility, stocks that carry low betas would provide precisely that.

Stocks with a beta of less than 1.0 are less volatile than the general market, and those with a beta of higher than 1.0 are more volatile than the general market.

Three companies that carry a beta of less than 1.0 include H&R Block HRB, Kellogg Company K, and American Electric Power Company AEP.

Below is a chart illustrating the year-to-date share performance of all three companies with the S&P 500 blended in as a benchmark.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Let’s take a closer look at each company.

H&R Block

H&R Block HRB is the world's largest income tax filing company, offering income tax return filing services for salaried individuals via three distinct methods: free online e-filing, assisted tax e-filing, and in-person tax e-filing.

The company carries a beta of 0.69.

In addition, H&R Block’s forward earnings multiple resides at a nice 12.2X, representing a steep 42% discount relative to its Zacks Consumer Discretionary Sector. The company carries a Style Score of an A for Value.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

HRB has been on an impressive earnings streak, exceeding the Zacks Consensus EPS Estimate in six consecutive quarters. Top-line results have also been robust, with H&R block chaining together ten straight revenue beats.

Below is a chart illustrating the company’s revenue on a quarterly basis.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Furthermore, the company rewards its shareholders via its annual dividend yielding 2.3%, much higher than its Zacks Consumer Discretionary Sector average of 0.9%.

H&R Block has upped its dividend payout four times over the last five years, undoubtedly a major positive.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Kellogg Company

Kellogg Company K manufactures and markets ready-to-eat convenience foods, with a balanced portfolio of cereal and snack products.

Kellogg Company carries a beta of 0.43.

The company’s shares trade at solid valuation multiples, further displayed by its Style Score of a B for Value. K’s forward earnings multiple resides at 17.9X, representing a sizable 12% discount relative to its Zacks Consumer Staples Sector.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

In addition, Kellogg’s has consistently exceeded quarterly estimates – the company has surpassed bottom and top-line estimates in nine of its previous ten quarters.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Kellogg’s dividend metrics also deserve a highlight – the company’s annual dividend yields a sizable 3.1%, much higher than its Zacks Consumer Staples Sector average of an already steep 2.6%.

Furthermore, the company has upped its dividend payout five times over the last five years.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

American Electric Power Company

American Electric Power Company AEP is a public utility holding company that, through directly and indirectly owned subsidiaries, generates, transmits, and distributes electricity, natural gas, and other commodities.

AEP’s beta sits at 0.35.

American Electric Power Company’s forward earnings multiple of 20.4X is slightly elevated, representing a 26% premium relative to its Zacks Utilities Sector. Still, the company rocks a Value Style Score of a C.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

AEP has repeatedly exceeded bottom-line estimates, registering seven EPS beats over its last ten quarters. Top-line results have also been stellar as of late – AEP has exceeded revenue estimates in six consecutive quarters.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Fortunately for investors seeking an income stream, AEP has that covered with its annual dividend that yields 3.1%, just a tick above its Zacks Sector average.

In addition, the company has upped its dividend payout five times over the last five years, with a five-year annualized dividend growth rate of an impressive 6%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Bottom Line

Volatility has returned in full force; after a rally off June lows, stocks have tumbled as of late following a hawkish tone from the Fed.

During periods of heightened volatility, looking for stocks with low betas can provide a valuable layer of defense.

Stocks with a beta of less than 1.0 are less volatile than the general market, and those with a beta of higher than 1.0 are more volatile than the general market.

H&R Block HRB, Kellogg Company K, and American Electric Power Company AEP all carry a beta of less than 1.0.

Of course, some gains could be missed by deploying a defense-first approach. However, it’s vital to remember that risk management is always king.


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American Electric Power Company, Inc. (AEP) : Free Stock Analysis Report
 
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Kellogg Company (K) : Free Stock Analysis Report
 
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