Low-Beta Stocks Shield Investors From Volatility
Volatility has headlined the market following the Fed’s Jackson Hole Economic Symposium. Fed Chairman, Jerome Powell, was rather hawkish in his comments.
Powell believes bringing inflation down will take some time, adding that the plan will, unfortunately, “bring some pain to households and businesses.”
Needless to say, the market didn’t react well to the comments, as they essentially crushed any hopes that the Fed would soon reverse its rate-hike trajectory.
Pairing these remarks with the fact that we’re about to break into September, a historically weak month in the market, gives investors plenty of valid reasons to consider a defense-first approach.
For investors looking to shield themselves against volatility, stocks that carry low betas would provide precisely that.
Stocks with a beta of less than 1.0 are less volatile than the general market, and those with a beta of higher than 1.0 are more volatile than the general market.
Three companies that carry a beta of less than 1.0 include H&R Block HRB, Kellogg Company K, and American Electric Power Company AEP.
Below is a chart illustrating the year-to-date share performance of all three companies with the S&P 500 blended in as a benchmark.
Let’s take a closer look at both companies:
H&R Block
H&R Block HRB is the world’s largest income tax filing company, offering income tax return filing services for salaried individuals via three distinct methods: free online e-filing, assisted tax e-filing, and in-person tax e-filing.
The company carries a beta of 0.69.
In addition, H&R Block’s forward earnings multiple resides at a nice 12.2X, representing a steep 42% discount relative to its Consumer Discretionary Sector. The company carries a Style Score of an A for Value.
HRB has been on an impressive earnings streak, exceeding the Consensus EPS Estimate in six consecutive quarters. Top-line results have also been robust, with H&R block chaining together ten straight revenue beats.
Below is a chart illustrating the company’s revenue on a quarterly basis.
Furthermore, the company rewards its shareholders via its annual dividend yielding 2.3%, much higher than its Consumer Discretionary Sector average of 0.9%.
H&R Block has upped its dividend payout four times over the last five years, undoubtedly a major positive.
Kellogg Company
Kellogg Company K manufactures and markets ready-to-eat convenience foods, with a balanced portfolio of cereal and snack products.
Kellogg Company carries a beta of 0.43.
The company’s shares trade at solid valuation multiples, further displayed by its Style Score of a B for Value. K’s forward earnings multiple resides at 17.9X, representing a sizable 12% discount relative to its Consumer Staples Sector.
In addition, Kellogg’s has consistently exceeded quarterly estimates – the company has surpassed bottom and top-line estimates in nine of its previous ten quarters.
Kellogg’s dividend metrics also deserve a highlight – the company’s annual dividend yields a sizable 3.1%, much higher than its Zacks Consumer Staples Sector average of an already steep 2.6%.
Furthermore, the company has upped its dividend payout five times over the last five years.
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