What are we looking for?
Stocks that can soothe your nerves.
Mutual funds that purport to specialize in low volatility portfolios have soared in popularity over the past year as anxiety-prone investors seek investments that won’t dip and dive with every ripple in the market. Most of these funds, though, focus on a single measure of volatility.
With the co-operation of Craig McGee, senior consultant at Morningstar Canada, we looked last week for Canadian stocks that are steady performers on a number of key metrics. Today we perform the same exercise for U.S. stocks.
How we did it
Mr. McGee used the CPMS U.S. database to search for stocks with low volatility in three vital areas: share price, past earnings and future earnings. Specifically, he screened for the top stocks based on:
A three-year beta less than 1 (beta is used to measure a stock’s volatility; a stock with a beta under 1 tends to fluctuate less than the overall market);
A CPMS grade between A+ and C+ for absolute price volatility (this grade measures the standard deviation of daily returns over the past year; an A+ grade indicates the stocks with lowest volatility);
A CPMS grade between A+ and C+ for the standard deviation of earnings per share (EPS) over the past five years;
A CPMS grade between A+ and C+ for the spread in current year EPS estimates (an A+ grade on this score indicates a low spread);
A CPMS grade between A+ and C+ for the spread in next year’s EPS estimates.
To ensure adequate diversification, Mr. McGee permitted no more than three stocks from any single sector. And as an additional safety check he permitted only stocks with a market capitalization of at least $1-billion (U.S.).
More about Morningstar
Morningstar Inc. provides independent investment research in North America, Europe, Australia and Asia.
Its investment research tool, Morningstar CPMS, provides quantitative North American equity research and portfolio analysis to institutional clients and financial advisers.
CPMS figures cover more than 95 per cent of the investable North American stock market.
What we found
Some companies on this list won’t surprise you: IBM, Johnson & Johnson and McDonald’s are all regarded as paragons of predictability. Many names, though may be unfamiliar.
There is no guarantee that these steady stocks will beat the market over the next year or two, but they do provide more protection than most if market storms begin to blow.
U.S. stocks with low volatility
|Rank||Company||Symbol||Market Cap (US$ Mil)|
|3||McCormick & Co||MKC-N||8,914|
|4||Becton, Dickinson & Co||BDX-N||17,344|
|5||American Electric Power||AEP-N||22,705|
|6||Campbell Soup Co||CPB-N||12,941|
|8||CMS Energy Corp||CMS-N||7,057|
|9||Johnson & Johnson||JNJ-N||212,752|
|10||Nat'l Health Investors||NHI-N||1,803|
Grades relative to 2,239 stocks in CPMS U.S. database (A = good; E = poor). Source: Morningstar Canada
|Rank||Company||Symbol||Market Cap (US$ Mil)||Expected Yield||3yr Beta||1yr Std Dev of Daily Returns||5yr EPS Stability||Current Year EPS Estim Spread||Next Year EPS Estim Spread|
|3||McCormick & Co||MKC-N||8,914||2.02%||0.42||A+||A+||A+||A+|
|4||Becton, Dickinson & Co||BDX-N||17,344||2.25%||0.78||A+||A+||A+||A+|
|5||American Electric Power||AEP-N||22,705||4.02%||0.33||A+||A+||A+||A+|
|6||Campbell Soup Co||CPB-N||12,941||2.82%||0.20||A+||A+||A+||A+|
|8||CMS Energy Corp||CMS-N||7,057||3.83%||0.26||A+||B+||A+||A+|
|9||Johnson & Johnson||JNJ-N||212,752||3.21%||0.45||A+||A+||A+||B-|
|10||Nat'l Health Investors||NHI-N||1,803||4.29%||0.49||A+||A+||A+||A+|
|12||Auto Data Pro Inc||ADP-Q||29,761||2.84%||0.83||A+||A+||A+||A+|
|14||Int'l Business Machines||IBM-N||226,924||1.69%||0.62||A-||A+||A+||B-|
|18||Capitol Federal Fin'l||CFFN-Q||1,800||2.54%||0.62||A+||B-||A+||C-|
|19||Geo Group Inc||GEO-N||2,127||5.79%||0.53||C+||A+||A+||B+|
|23||Silgan Holdings Inc||SLGN-Q||2,972||1.12%||0.56||A-||A+||A-||C+|
|24||Sonoco Products Co||SON-N||3,201||3.78%||0.77||A-||B-||A+||B+|
|27||Enterprise Prod Prtnrs||EPD-N||51,012||4.66%||0.70||A-||B-||C+||C+|
|29||Spectra Energy Corp||SE-N||17,889||4.45%||0.94||A+||B-||C+||B+|
- Southern Co$50.10+0.15(+0.30%)
- Kimberly-Clark Corp$125.19-1.05(-0.83%)
- American Electric Power Company Inc$63.50+0.44(+0.70%)
- Campbell Soup Co$61.71+0.22(+0.36%)
- Stericycle Inc$95.56-26.18(-21.50%)
- CMS Energy Corp$40.68+0.31(+0.77%)
- Johnson & Johnson$112.08-0.40(-0.36%)
- National Health Investors Inc$68.09-0.87(-1.26%)
- AmerisourceBergen Corp$85.10-1.32(-1.53%)
- Automatic Data Processing Inc$88.44-0.66(-0.74%)
- McDonald's Corp$126.49-1.43(-1.12%)
- International Business Machines Corp$145.94-1.13(-0.77%)
- Paychex Inc$52.12-0.70(-1.33%)
- Updated April 29 4:00 PM EDT. Delayed by at least 15 minutes.