Low Volatility Stocks With a Winning Record Are Attractively Priced

For investors seeking stability amidst a volatile market, large-cap stocks, particularly in the healthcare sector, could be an attractive option. In times of uncertainty, such as the recent fluctuations in the market, it’s wise to consider stocks that offer both low volatility and solid returns.

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The past week in the stock market has been tumultuous, with significant swings following a steep global sell-off. By the end of the week, however, the market had largely rebounded, nearly erasing its earlier losses. The initial downturn was triggered by weaker-than-expected U.S. payroll data, concerns over the Federal Reserve's pace of interest rate cuts, and the unwinding of the yen "carry trade."

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To navigate this uncertain market environment, CNBC Pro conducted a screening of FactSet data to identify S&P 500 companies that could serve as stable investments. The criteria focused on stocks that have exhibited low share price volatility over the past five years and have delivered total returns, including share price appreciation and dividends, that surpass the S&P 500’s performance over the same period. Additionally, these stocks have shown resilience in the short term and are currently attractively valued, with gains of 5% or more in the past three months and a forward price-to-earnings ratio below that of the broader market index, which stands at 21 or less.

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Among the standout stocks are healthcare giants Amgen, UnitedHealth Group, and AbbVie. These companies have demonstrated low volatility and strong returns over recent years, making them potential safe havens for investors.

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AbbVie, a prominent pharmaceutical company, has been particularly impressive, with a staggering 262% gain over the past five years, the highest among the selected stocks. This year alone, AbbVie’s shares have risen by 22.6%, with an 18.7% increase over the past three months. Morgan Stanley Wealth Management recently included AbbVie in its U.S. model portfolio.

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In an August 1 note, the firm cited AbbVie’s “strong recent momentum in immunology” as a key factor for its decision. This momentum is helping the company compensate for lost revenues from Humira, a blockbuster drug for treating severe rheumatoid arthritis, Crohn’s disease, and ulcerative colitis. While Humira’s global net revenue fell by 29.8% in the second quarter of 2023 due to competition from cheaper biosimilars, AbbVie’s management noted that some patients are transitioning to the company’s newer immunology treatments, Skyrizi and Rinvoq, positioning the company for strong earnings growth in the medium term.

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Amgen, another major player in the healthcare sector, has also delivered solid returns, with a 104% total return over the past five years. While this growth is slower compared to AbbVie, it is still significant. This year, Amgen’s shares have gained nearly 12%. On Tuesday, the company revised its full-year earnings outlook and reported a weaker-than-expected profit for the second quarter, attributing the shortfall to higher operating expenses, including costs associated with the development of its experimental obesity drug, MariTide.

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Following this report, Wells Fargo analyst Mohit Bansal downgraded Amgen’s shares to “equal weight” with a price target of $335, indicating a modest potential upside of 3.2%. Bansal noted that the market has already factored in the potential success of MariTide, given Amgen’s strong performance over the past year.

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In addition to healthcare, T-Mobile is another stock that has consistently delivered strong returns with low volatility. The mobile network operator has seen a 152% gain over the past five years, with a five-year price volatility of 6.2%. This year, T-Mobile’s shares have surged by more than 21%, significantly outperforming the broader market. The company exceeded expectations for both revenue and earnings in the second quarter and raised its full-year customer addition forecast.

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Following the earnings report on July 31, several analysts, including those from TD Cowen and Barclays, raised their price targets for T-Mobile. Barclays analyst Kannan Venkateshwar, who increased his price target by $20 to $200, highlighted the company’s operational outperformance and conservative subscriber guidance.

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Other stocks with low volatility and appealing valuations include AutoZone, a retailer specializing in automotive replacement parts, and Aflac, an insurance company. These companies, like the others mentioned, offer a combination of stability and potential for growth, making them attractive options for investors looking to navigate a choppy market. By focusing on these large-cap stocks with proven track records, investors can potentially safeguard their portfolios while still achieving meaningful returns.

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