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Top 5 High-Flying Low-Beta Stocks for a Volatile September

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·8 min read
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Volatility has returned on Wall Street after an impressive rally in the first eight months of this year. Investors are concerned about the slowing pace of U.S. economic growth, following the rapid spread of the Delta variant of COVID-19. Moreover, market participants are also concerned that mounting inflationary pressure may compel the Fed to shift from its ultra-dovish monetary policies.

Wall Street is likely to remain volatile in the near future, despite the fact that the fundamentals of the U.S. economy remain strong and the overall trend of the market remains encouraging.

At this stage, it will be prudent to invest in low-beta (beta >0 <1) stocks with a favorable Zacks Rank that have popped in the past three months and are expected to maintain the momentum in the rest of 2021.

Near-Term Concerns

After a strong performance in the first eight months of 2021, September has begun with several concerns on the part of market participants. The rapid spread of the highly infectious Delta variant of coronavirus raised serious concerns about a possible decline in U.S. economic growth.

In the last five trading days, the three major stock indexes — the Dow, the S&P 500, and the Nasdaq Composite — dropped 2.4%, 1.7%, and 1.4%, respectively. The S&P 500 and the Nasdaq Composite posted their longest losing streak since Feb 22 and Jul 16, respectively.

On Sep 8, the Fed published its Beige Book wherein it stated that from early July through August, economic growth in the United States “downshifted slightly to a moderate pace.” The reasons were the resurgence of coronavirus, lingering supply-chain disruptions, and a shortage of labor.

A series of recently released weak economic data also dented investors’ confidence. Nonfarm payrolls in August were highly disappointing. The index of both consumer confidence and consumer sentiment dropped significantly last month. Manufacturing and services PMIs declined in August. Inflation rates stayed at a 30-year high.

U.S. stock markets are likely to remain subdued as market participants are waiting for the Fed’s decision on the tapering of the $120 billion per month bond-buy program in the next FOMC meeting to be held on Sep 21-22.

Future Catalysts

Despite the recent market meltdown, year to date, the Dow, the S&P 500 and the Nasdaq Composite are up 13.1%, 18.7% and 17.1%, respectively. The U.S. economy grew 6.3% and 6.5% in the first and the second quarters of 2021, respectively.

Moreover, in absolute terms, U.S. GDP in second-quarter 2021 exceeded the pre-pandemic level. As of Sep 10, the Atlanta Fed projected that the U.S. economy will grow by 3.7% in the third quarter.

Total earnings of the S&P 500 Index are currently projected to grow 26.2% year over year on 13.7% higher revenues in third-quarter 2021 after earnings soared 94.6% on 24% higher revenues in second-quarter 2021. Total earnings of the S&P 500 are expected to climb 42.6% year over year on 13% higher revenues in 2021 and increase 9.3% year over year on 6.7% higher revenues in 2022.

On Aug 24, the House of Representatives advanced a $1 trillion bipartisan infrastructure bill. On Aug 10, the U.S. Senate passed a bipartisan infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years.

Total spending may go up to $1.2 trillion if the plan is extended to eight years. Infrastructure projects such as roads, bridges, passenger rails, airports, drinking water and waste-water systems, high-speed Internet, and climate-related infrastructure should benefit.

Our Top Picks

We have narrowed down our search to five large-cap (market capital > $10 billion) low-beta stocks that have provided double-digit returns in the past three months compared with the market’s benchmark S&P 500’s return of a little over 5%. These stocks have strong potential for the rest of 2021 and have seen positive earnings estimate revisions within the past 30 days.

Moreover, these companies are regular dividend payers that may act as an income stream in the market’s downturn. Finally, each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The chart below shows the price performance of our five picks in the past three months.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Danaher Corp. DHR is poised to gain from Danaher Business System (“DBS”), the policy of rewarding shareholders through dividend payments, synergistic benefits from acquired assets and investment in product innovation in the quarters ahead.

The company anticipates core revenue growth in the mid to high-teens range for the third quarter of 2021 and in the high-teens for 2021. The pandemic-led tailwinds are expected to boost core sales by high-single digits in the third quarter and by 10% in 2021.

The company has an expected earnings growth rate of 50.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the past seven days. The stock has a beta of 0.70 and a dividend yield of 0.25%. The stock price has soared 33.4% in the past three months.

Carrier Global Corp. CARR is benefiting from solid momentum across HVAC, refrigeration, and Fire and Security businesses. Rising demand in North America residential HVAC remained a positive.

Additionally, the company’s increasing traction in the transport refrigeration space was a positive. Moreover, Abound, which is performing well in the indoor environment, is likely to continue driving growth in recurring revenues. Also, improving order intake in the fire & safety segment is a tailwind.

The company has an expected earnings growth rate of 33.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the past 30 days. The stock has a beta of 0.79 and a dividend yield of 0.85%. The stock price has jumped 22.2% in the past three months.

Costco Wholesale Corp. COST operates membership warehouses in the United States, Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Korea, Australia, Spain, France, Iceland, China, and Taiwan. It offers branded and private-label products in a range of merchandise categories.

Its growth strategies, better price management, decent membership trend and increasing penetration of e-commerce business reinforce its position. The strategy to sell products at discounted prices has helped draw customers seeking both value and convenience. These factors have been aiding in registering impressive sales numbers.

The company has an expected earnings growth rate of 8.1% for the current year (ending August 2022). The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the past seven days. The stock has a beta of 0.66 and a dividend yield of 0.68%. The stock price has climbed 21.3% in the past three months.

Motorola Solutions Inc. MSI provides communication equipment, software and services. It focuses on providing public safety communications ranging from infrastructure to applications and devices.

The company aims to augment its position in the public safety domain by forging strategic alliances with other players in the ecosystem. It is well positioned to benefit from holistic growth initiatives, disciplined capital distribution and a favourable macroeconomic scenario. Motorola also raised its guidance for 2021.

The company has an expected earnings growth rate of 16.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the past seven days. The stock has a beta of 0.77 and a dividend yield of 1.17%. The stock price has advanced 14.8% in the past three months.

Republic Services Inc. RSG provides non-hazardous solid waste collection, transfer, recycling, disposal and energy services for small-container, large-container, municipal and residential and energy services customers in the United States and Puerto Rico.

The company is focused on increasing its operational efficiency by shifting to compressed natural gas collection vehicles and converting rear-loading trucks to automated-side loaders to reduce costs. It continues to grow internally with the help of long-term contracts for the collection, recycling and disposal of solid waste materials.

The company has an expected earnings growth rate of 14% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the past 30 days. The stock has a beta of 0.71 and a dividend yield of 1.37%. The stock price has rallied 13.4% in the past three months.


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Danaher Corporation (DHR) : Free Stock Analysis Report

Republic Services, Inc. (RSG) : Free Stock Analysis Report

Costco Wholesale Corporation (COST) : Free Stock Analysis Report

Motorola Solutions, Inc. (MSI) : Free Stock Analysis Report

Carrier Global Corporation (CARR) : Free Stock Analysis Report

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