You'll Sleep Better With These Stocks

The way stocks have bounced up and down over the past year has made even some of the most risk-tolerant investors feel a little seasick. But sometimes a turbulent market exposes some great stocks that you might otherwise miss during better times.

Over longer periods of time, stocks generally rise in value. As many people have discovered since late 2007, however, you don't always get a smooth ride on your path to prosperity. The same stocks that top the performance lists during bull markets often send your portfolio running for cover when markets begin to fall. Financial stocks provide a great example of that phenomenon: They rose to great heights, only to make their eventual fall more dramatic.

Yet while most investors love to focus solely on returns when most stocks are rewarding their shareholders with good news, capital preservation takes center stage during bear markets. As it turns out, many of the stocks that have encountered the least volatility over the past year have also provided some great long-term performance for investors.

Looking for stability
With the financial world having seemingly been on the verge of collapse for months now, it's only reasonable that investors would flock to safe havens. That's one reason why defensive stocks like Family Dollar (NYSE:FDO) and McDonald's (NYSE:MCD) have performed as well as they have: Recession-fearing shareholders want a business that won't fall apart even when consumers have less money to spend.

Yet the calmest stocks amid the financial maestrom haven't necessarily seen huge run-ups. Rather, many of them have done exactly what many of their shareholders have counted on them to do: stay relatively stable by providing a reasonable value proposition for investors. Take a look, for example, at these companies:

Source: Yahoo! Finance.

In a market in which many stocks have sunk to 52-week lows that are tiny fractions of their former glory, these companies have seen their shares trade in a relatively narrow range.

Moreover, all of them currently trade near the midpoints of their ranges. That suggests that there's a happy medium among investors between avoiding the malaise that has ensnared most stocks while also not falling prey to the desperation that has lifted some more popular defensive stocks higher -- and could leave them poised for a big fall when the economy turns around.

A lesson learned
Perhaps the most interesting thing about these companies, however, is how unremarkable most of them would have seemed just a year ago. After all, the five-year returns of 5% or less that several of these stocks sport don't look all that great -- until you consider that the S&P 500 has lost nearly 4% annually over that stretch since 2004.

What has now set these stocks apart is how they've helped shareholders avoid the big losses that most investors have suffered. And while most of these stocks are in traditionally defensive industries like consumer staples, utilities, and health-related services, they aren't generally the best-known names -- which may have left them better values than their big-name competitors.

When you invest, you have to look for stocks that will deliver the best returns. Too often, though, investors forget that it's at least as important -- if not more so -- to find smart stocks that will hold up during bad times as it is to seek out the companies that will pay off the most in a bull market. Especially for those whose risk profiles preclude them from swinging hard at high-risk companies, the great values that low-volatility stocks have provided can help you stabilize your portfolio and make it easier to survive the bear market without panicking.

For more on finding the best values in the market, read about:

• The next incredible buying opportunity.
• Have stocks hit bottom?
• The way to earn the best returns.