15 U.S. stocks to escape volatility - MoneySense

15 U.S. stocks to escape volatility

We hunt for stocks to escape stomach fluctuations during turbulent markets

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What are we looking for?: US stocks that fluctuate less than the market.

The screen

The U.S. market has seen its fair share of volatility over the years. With any sort of downward volatility comes the uncertainty of whether to stay invested, or whether to pull your money out in order to avoid any further decline. Typically, the best approach is to stay invested so long as you have an appropriately long-time horizon, however, this is easier said than done. The more volatile a portfolio, the more difficult it can be to stomach fluctuations during turbulent markets.

READ: Are buybacks better for investors than dividends?

Today’s strategy looks for U.S. stocks that can better weather volatility than the general U.S. market (as measured by the S&P 500 Total Return Index). This strategy ranks stocks based on five-year dividend growth (measures the average annual growth of dividends per share over the past five years; high values are preferred) and five-year beta times five-year sigma (a risk metric; low values are preferred).

In order to qualify, stocks must have:

  • Five-year dividend growth greater than 0;
  • Five-year beta times five-year sigma in the bottom two-thirds of peers (today this value is less than 9.28);
  • Ten-year dividend growth greater than 1%;
  • Dividend yield greater than 2%.

READ: 15 Canadian stocks to help investors ride market swings

What we found

I used Morningstar CPMS, our research tool, to back test this strategy from January 2005 to March 2018. During this process, a maximum of 15 stocks were purchased. Stocks were sold if their ranking fell below the top 15 per cent of the U.S. universe or if the company’s five-year dividend growth dropped below 0%. Lastly, stocks were sold if the company’s five-year beta times five-year sigma rose above the top third of peers (today this value is greater than 11.37). When sold, the positions were replaced with the highest-ranked stock not already owned in the portfolio. Over this period, the strategy produced an annualized total return of 12.7% while the S&P 500 Total Return Index returned 8.6% across the same period.

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As can be seen in the below chart, this strategy outperformed the benchmark across 1, 3, 5, 10 years, and since inception time periods. Another thing worth noting is that while the strategy’s standard deviation of returns is slightly higher than those of the S&P 500, the downside deviation (measure of the variability of negative returns) is 8.9% relative to the benchmark’s 9.4%.

Stocks that qualify for purchase into the strategy today are listed in the accompanying table. As always, investors are encouraged to conduct their own independent research before purchasing any of the investments listed here.


Rank Company Symbol Five-year beta times five-year sigma Ten-year dividend growth (%) Five-year dividend growth (%) Dividend yield (%)
1 TiVo Corporation TIVO -3.22 15.61 36.27 5.33
2 Vail Resorts Inc MTN 2.16 19.56 58.05 2.65
3 Crown Castle Intl CCI 1.45 18.52 37.23 4.17
4 Equinix Inc EQIX 2.42 17.26 81.99 2.15
5 Big 5 Sporting Goods BGFV -10.53 12.02 12.50 6.67
6 Randgold Resources Ltd GOLD 2.04 32.25 36.30 2.46
7 Movado Group Inc MOV -1.93 70.09 17.34 2.08
8 CubeSmart CUBE 0.76 30.69 28.09 4.07
9 Benchmark Elect. Inc BHE 2.03 15.02 32.65 2.26
10 Watsco Inc WSO 4.09 14.39 40.53 3.48
11 Nasdaq Inc. NDAQ 2.94 20.29 36.77 2.00
12 NIC Inc EGOV 3.59 15.77 37.63 2.07
13 Hanmi Financial Corp HAFC 4.76 23.45 60.33 3.47
14 Graphic Packaging Hldg GPK 5.27 17.07 65.82 2.16
15 Stewart Info Svcs Corp STC 5.97 25.18 103.06 2.86

Emily Halverson-Duncan, CFA, is a Director, CPMS Sales at Morningstar Research Inc. Morningstar provides independent investment research in North America, Europe, Australia and Asia. Its research tool, Morningstar CPMS, covers more than 95 per cent of the investable North American stock market.

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