Safe Stocks in a Volatile Market

Concern about a slowing Chinese economy has spread to stock markets across the globe. One day stocks are down and one day they are up. The US market has officially reached the correction definition of a ten percent drop. With profitable investing in mind what are some safe stocks in a volatile market? MarketWatch comes to the rescue with a list of 10 safe stocks based on low month to month volatility.

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, +1.09%  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.

An updated ten stock list through August 2015 of low monthly volatility stocks starts with Wells Fargo & Co and a 2.883% monthly price volatility and ends with Sysco Corp and a 3.239% monthly volatility over three years. Return on investment for Wells Fargo over 5 years is 158% and for Sysco it is 67%. In response to the most recent volatility Wells Fargo fell from $56 to $51 and Sysco fell from $41 to $39.50.

It may well be that a history of low volatility helps predict safe stocks in a volatile market but when everyone starts to sell even the most non-volatile stocks appear to take a hit.

Market Niche as a Guide to Safe Stocks in a Volatile Market

There are some products that people keep buying not matter what the market is doing or is there is a recession or not. Clorox is a good example of a safe stock in a volatile market. Google finance describes the company.

The Clorox Company (Clorox) is a United States-based manufacturer and marketer of consumer and professional products. The Company sells its products through mass retail outlets, e-commerce channels, distributors, and medical supply providers. The Company operates through strategic business units that are aggregated into four reportable segments: Cleaning, which consists of laundry, home care and professional products marketed and sold in the United States; Household, which consists of charcoal, cat litter and plastic bags, wraps and container products; Lifestyle, which includes food products, water-filtration systems and filters and natural personal care products, and International, which consists of products sold outside the United States, such as laundry, home care, water-filtration, charcoal and cat litter products, dressings and sauces, plastic bags, wraps and containers and natural personal care products.

Clorox fell about 15% at the depth of the last market crash and has nearly tripled in stock price since then. In the three weeks Clorox rose from $110 a share to $119 and then fell to $107. Around $110 is where the stock has spent most of the year. This is a traditional safe haven stock and a safe stock in a volatile market.

Imitate Successful Investors

A basic and often successful way to find safe stocks in a volatile market is to imitate successful investors such as Warren Buffett. 23/7 Wall Street suggests that the Oracle of Omaha already has stocks in his portfolio that do reasonably well as the market collapses around them. An example is Johnson & Johnson.

Buffett owns a tiny portion of Johnson & Johnson (NYSE: JNJ). He may increase that in a market sell-off. Johnson & Johnson has had a dominant position in the consumer health products, pharmaceuticals and medical devices markets. The company is among the oldest in America, founded in 1885, and it has a 3% yield. Its revenue has posted a very modest, but consistent growth recently to $74.3 billion last year. Net income also has grown during the period and reached $16.3 billion last year. Johnson & Johnson holds $32 billion in cash and short-term investments. Its performance has been boring over the past two years, as shares have risen only 8%. However, on that basis, it can hardly be considered part of the sharp rise in markets that has inflated valuations.

The stock has fallen a few points but the company has a broad base of products and is dominant in many sectors. If you are looking for safe stocks in a volatile market this is probably one of them.

Safe Stocks in a Volatile Market PPT


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