News flash: It now appears that traders have discovered that the market indexes can move in both directions.
We investors have been absolutely spoiled with an eight-month rally that began last September and extended through April. Recently, though, the wheels appear to be coming off the magic bus, and major stock indexes have suffered through six consecutive losing weeks. So how should one invest in light of an increasingly volatile and downtrending market?
With the S&P 500 Volatility Index up nearly 30% from its April lows, we have no choice but to accept the fact that volatility and worry are creeping their way back into the marketplace. Luckily, we have a wide swath of companies to choose from across a wide range of industries. We don't have to immediately turn to short-selling in a volatile environment to try to make a profit or preserve our capital. Sometimes, finding winning stocks in a down market can start with something as simple as following a company's beta.
Beta is a measure of a company's volatility in relation to the S&P 500. With the S&P 500 having a baseline of 1, any stock with a beta of 0.99 or lower would imply a company that is less volatile than the S&P 500, while betas north of 1 would imply a company is more volatile than the S&P 500. By aligning your portfolio with low-beta, dividend-paying companies, you could significantly improve your chances of outperforming the market during a downturn.
I can't tell you which companies to buy, but I can suggest companies that popped up on my radar after using The Motley Fool CAPS Stock Screener. My initial screen broke down as follows:
- Market cap > $10 billion
- Dividend yield > 2%
- Beta < 1
This search was aimed at larger companies because they have historically stronger earnings track records and usually possess higher dividend yields. As you'd expect, from the roughly 90 results or so, I ended up with a lot of stocks from the same sectors. So I further filtered the results to find the best balance between beta and dividend yield, with an emphasis on finding a diversified set of companies from different sectors.
Without further ado, here's my final 15-company list that should give you a better-than-average chance at conquering a volatile market.
|
Company |
Dividend Yield |
Beta |
|---|---|---|
|
Altria |
5.6% |
0.50 |
|
AT&T |
5.7% |
0.59 |
| Waste Management |
3.7% |
0.58 |
| Colgate-Palmolive |
2.8% |
0.54 |
| Coca-Cola |
2.9% |
0.60 |
|
Johnson & Johnson |
3.4% |
0.60 |
|
M&T Bank |
3.3% |
0.83 |
| Home Depot |
2.9% |
0.87 |
| Chevron |
3.1% |
0.71 |
|
Procter & Gamble |
3.2% |
0.51 |
| Travelers |
2.7% |
0.57 |
|
Bristol-Myers Squibb |
4.7% |
0.52 |
|
Archer Daniels Midland |
2.2% |
0.34 |
| Progress Energy |
5.3% |
0.35 |
| Kellogg |
2.9% |
0.50 |
Source: Motley Fool CAPS.
You'll notice you have a wide variety of representation here, including pharmaceuticals, energy, financials, and services. Just remember that you're not going to knock it out of the park with every purchase. However, you can limit your downside risk and potentially outperform in any market conditions with companies like these.
Which one of these companies would you put on your watchlist? Share your thoughts in the comments section below and consider adding these stocks, as well as your own personalized list of companies, to our free watchlist service to keep up on the latest news. All you have to do is click the "+" sign next to the stock's name to get started.
