Opinion: 10 ‘safe’ stocks for worried investors
Published: Aug 21, 2015 5:07 p.m. ET
Eight of the low-volatility stocks have risen — up to 12% — since the end of January.
Sysco was added to the list of 10 S&P 500 stocks with the lowest monthly price volatility over three years.
We published a list Jan. 30 of stocks with low long-term volatility, suggesting they might be profitable long-term picks for investors who feared a broad stock market decline. That was based on the results of a study showing that portfolios with lower price volatility tend to outperform those with higher volatility over long periods. The group of 10 stocks has, for the most part, performed well since then.
When we put the low-volatility list together, the S&P 500 Index SPX, -3.19% had fallen 3% for the year. Following Thursday’s decline of 2.1% and Friday’s decline of 3.2%, the index is now down 4.3% in 2015 . On Friday, the VIX “fear” index registered its largest weekly move ever. So low-volatility stocks can be viewed as defensive or even “safe” — relatively, that is.
Our Jan. 30 list included the 10 S&P 500 member companies with lowest monthly price volatility over three years. The price-volatility figure is the standard deviation of the average of monthly price changes for the period. So as the stock market tanks,
Read: When the stock market last crashed, these sectors fared best
When we say “long term,” we mean commitments to investments for several years. But that doesn’t stop us, or readers, from gauging performance over shorter periods.
Here’s how the group has performed since then:
Company Ticker Industry Monthly price volatility – 3 years, as of Jan. 30 Total return – Jan. 31 through Aug. 20
Praxair Inc. PX, -2.72% Specialty Chemicals 2.798 -7%
Marsh & McLennan Cos. MMC, -2.42% Insurance Brokers/ Services 2.853 5%
U.S. Bancorp USB, -2.99% Major Banks 3.008 5%
McDonald’s Corp. MCD, -2.64% Restaurants 3.149 8%
Stericycle Inc. SRCL, -2.18% Health Industry Services 3.151 12%
PepsiCo Inc. PEP, -1.77% Beverages: Non-alcoholic 3.188 4%
Union Pacific Corp. UNP, -3.21% Railroads 3.193 -24%
Wells Fargo & Co. WFC, -3.83% Major Banks 3.272 8%
Honeywell International Inc. HON, -3.66% Industrial Conglomerates 3.275 5%
Cintas Corp. CTAS, -2.00% Misc. Commercial Services 3.275 10%
So eight of the 10 S&P 500 stocks with the lowest three-year price volatility, as of Jan. 30, have risen, with the biggest increase being 12%. Eight out of 10 is a good track record for any stock picker, especially in a down market, although we must emphasize that a period of less than seven months cannot be considered “long term.”
The strongest performer is Stericycle Inc. SRCL, -2.18% which reported a 12% increase in second-quarter sales, although earnings per share declined 26% to 70 cents, because the company set aside $45 million to settle a class-action lawsuit.
The biggest loser among the group is Union Pacific Corp. UNP, -3.21% which suffered a “significant decrease in demand,” for its services, according to CEO Lance Fritz. That led to a 10% decline in second-quarter operating revenue, a 7% drop in earnings and a 3% decrease in earnings per share, to $1.38. EPS came in better than earnings because stock buybacks led to a 3% dip in Union Pacific’s average diluted share count during the quarter.
Read: What’s next after the market’s biggest bloodbath of the year
An updated list of low-volatility stocks
Here’s a new list of 10 S&P 500 stocks with the lowest monthly price volatility over three years through Aug. 20:
Company Ticker Industry Monthly price volatility – 3 years Total return – 3 years Total return – 5 years
Wells Fargo & Co. WFC, -3.83% Major Banks 2.883 70% 158%
Praxair Inc. PX, -2.72% Specialty Chemicals 2.925 10% 40%
Honeywell International Inc. HON, -3.66% Industrial Conglomerates 2.961 84% 183%
March & McLennan Cos. MMC, -2.42% Insurance Brokers/ Services 3.086 78% 178%
U.S. Bancorp USB, -2.99% Major Banks 3.119 42% 125%
Stericycle Inc. SRCL, -2.18% Health Industry Services 3.125 62% 122%
Amphenol Corp. Class A APH, -4.21% Electronic Components 3.139 127% 187%
McDonald’s Corp. MCD, -2.64% Restaurants 3.158 25% 60%
PepsiCo Inc. PEP, -1.77% Beverages; Non-alcoholic 3.179 46% 75%
Sysco Corp. SYY, -2.10% Food Distributors 3.239 48% 67%
Only two companies have been removed from the low-volatility list, Union Pacific and Cintas Corp. CTAS, -2.00% replaced by Amphenol Corp. APH, -4.21% and Sysco Corp. SYY, -2.10%
Only half of the stocks on the new list have beaten the S&P 500’s 53% return over the past three years, while six have exceeded the index’s five-year return of 111%.
It’s now time for investors to take a closer look at the companies listed above. They might be excellent long-term defensive picks.
Author: Philip Van Doorn, Investing Columnist