Good stocks – What are safe stocks with low volatility?
Safe stocks with low volatility mean the stocks that have a steady growth and tight price swings. They are normally seen via a track record of substantial month-to-month performance. Investors who avert risk and always feel uneasy with the market’s volatility tend to seek for such stocks and invest in them on a regular basis with the hope to profit from both their growth and dividends in the long run.
Stocks of large-capitalization companies are usually more secure to invest in because these companies are established. Besides, these stocks are popular and have high liquidity. They are so called ‘Bluechip’. It doesn’t mean that blue-chip stocks are always profitable as during some periods when the whole stock market retraces, these stocks could actually suffer great price decreases.
The fastest way to find low-volatility stocks is using their beta. Stocks whose beta is below 1.0 are safer when the markets turn bearish, but also gain less during the markets’ growth periods.
You should note that low-volatility stocks are totally different from little-changed stocks. Little-changed stocks are the ones whose prices change very little in a long period of time. Such stocks bring nothing.
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Benefits – What are the benefits of investing in safe, low-volatility stocks?
The first thing of interest when investing in stocks of large-capitalization companies is that you will get paid dividends on a regular basis regardless of the whole stock market’s development. The amount of dividends that you can receive on a per-share basis is often based on the performance of the company in a year. If the company’s performance in the year is better than expected, you may get a greater amount of dividends. Conversely, if the company’s performance in that year is worse than expected, you may get a smaller amount of dividends. However, you still get paid usually.
The second benefit of investing in blue-chip stocks is that they usually climb steadily. Some good blue-chip stocks like Coca-Cola Co. (KO), Berkshire Hathaway Inc. Class B (BRK.B), and Amdocs Ltd. (DOX) have had a very stable growth over the last ten years. If you invested in them in 2009 with a long-term approach, you might have banked a profit of more than 200% of your investment amount by February 2018. Pretty cool, right?
The final benefit of investing in blue-chip stocks is that they are liquid. You can buy and sell them at any time as these stocks are always in demand. Hence, you can invest without worrying that you are stuck with them one day.
Selecting stocks – How to find out safe, low-volatility stocks?
In order to know whether a stock is worth investing in or not, you must use both fundamental and technical analysis. Since you are looking for safe stocks with low volatility to invest in, your investment approach should be long-term. Any trading or speculating actions are not recommended here as they will be a waste of time and money when dealing with long-term stocks.
Long-term investment requires a big effort of analyzing the fundamentals. The first step in deciding which shares are worth investing in is to find out whether they are currently undervalued or overvalued. We aim to invest in the undervalued stocks with the hope that their prices will rise to reflect their true value.
You may have to spend a lot of time reviewing the companies’ financial statements as well as performance reports. Use data from the past three to five years and calculate some important financial health ratios including Current Ratio, Quick Ratio, and Debt to Equity Ratio to see whether a company has enough money to pay its costs. Then, calculate financial performance ratios (ROE, ROA) to see how efficient the company is managing its assets. Next, assess whether the company appears to be overvalued or undervalued via the Price-to-Earnings ratio (P/E).
Technical analysis also plays an important role of evaluating a stock. The stocks whose prices ascend steadily with tight swings during a long period are preferable as that proves those companies’ performance remains stable.
Fundamental analysis – a deeper look into fundamental analysis of stocks
After calculating some significant ratios to gain an outlook on a company’s performance, you must record all the information by creating a detailed file on the company. Now, compare the data with different companies’ in the same sector. By doing so, you will know whether the company has been overperforming or underperforming its rivals, and from there, know whether it is really undervalued/overvalued.
Let’s do it step-by-step as follows:
- Take a look at the stock’s performance. Compare with the index it trades on and as well its sector – You will see whether the company appears to have been outperforming or underperforming other companies in its sector or market.
- If the company seems to underperform its peers, review its ratios to see whether it’s really undervalued or just inefficient.
- Consider changes in the company’s ratios over the past three to five years and ask yourself whether its performance is improving substantially.
- Review the company’s current plan and re-consider its performance ratios – if the company is working hard to cut costs and have done some headway, you can be more flexible on its financial performance ratios.
- Re-consider financial health ratios to see whether it’s worth investing in. Safe, low-volatility stocks normally have good financial health ratios, therefore, any signs of a high risk indicate that you should skip the stock and find another better one.
Technical analysis – a deeper look into technical analysis of stocks
As mentioned above, technical analysis plays an important role of assessing whether a stock is worth investing or not. Take a look at the company’s price chart and consider the following elements:
- Have the stock’s price been increasing stably? – Look for a steady bullish trend over the past three to five years.
- Have there been any strong corrections? – Good stocks normally have tight price swings, so that you should be tentative if the stock’s price posted even a few strong corrections in the past.
- If it appears to have had significant pullbacks, ask yourself why – review the company’s performance during the periods when pullbacks occured.
- If the company’s performance remained good, the pullbacks might have been due to profit taking actions of investors. However, if its health or performance have been worsening, you should be cautious.
Technical analysis is also used as a tool to define high-probability entries, take-profit, and stop-loss points. Since you are chasing a long-term investment, technical analysis should be kept simple. Don’t try to complicate your technical strategy with dozens of indicators added to the chart. You should use the manual line drawing tool to draw trend lines and horizontal lines to define support/resistance obstacles. You can also use Fibonacci Retracement and Expansion to define where prices are likely to rebound. Just have in mind that if you have found a good stock, it will likely point North in the future.
Selecting stocks – some important notes when choosing safe stocks to invest in
Below are some important rules when picking good stocks to invest in:
- You can make the fundamental analyzing process more systematic by grading companies – for example 1 to 10, with 1 meaning low potential and 10 meaning high potential.
- Once you have got a list of potential stocks, just choose three to five top-growth ones that you want to go ahead and invest in.
- There’s no Holy Grail method for choosing good stocks. As time progresses, you will gradually improve your picking method through trial and error.
- An ideal stock is the one which should have at least matched the growth of the index it trades on, or even outperformed it.
- You should prioritize the companies that pay dividends regularly over the past three to five years – more ideally, those whose dividends are growing.
- You should pay attention to professional analysts’ expectations on the company’s prospect. Make sure that you read their recommendations carefully as they may also improve your insight into the company and sector.
- During the investing period, don’t skip any news about the chosen companies. Even if you are making a long-term investment, setup email alerts to receive any news and read the financial press daily to always stay on top of the companies you invest in.
Top safe, low-volatility stocks for now
The first one that you should take into consideration is Wal-Mart Stores Inc. (WMT). This company is seen as one of the six strongest traditional retailers by Morgan Stanley and is perhaps the least volatile in the Dow Jones Industrial Average. In Q3 2017, Wal-Mart’s total sales climbed about 4.3%, while its digital sales from e-commerce advanced nearly 50%. With its share prices increasing by 46.41% in last year in addition to an annual dividend of 2.08%, Wal-Mart is really worth an investment.
The second one is UnitedHealth (UNH). This is one of the leading companies in the health benefits and services industry with its year-to-date return of about 39%. In 2017, sales revenue of UnitedHealthcare – the company’s global healthcare benefits business – has risen by 10%, while sales revenue of Optum – its health services business – has also increased by 9%.
The third one we will look at is Procter & Gamble Co. (PG). This is a multi-national consumer goods corporation which makes household products like Tide laundry detergent and Crest toothpaste. Its YTD return is 13.25%. First quarter revenue was reported increasing by 0.8%, with EPS (earnings per share) outperforming analysts’ expectations by $0.01 at $1.09.
Safe stocks with low volatility are the stocks that have a steady growth and tight price swings. Investing in these stocks is really a good choice for investors who look to a low-risk investment approach as they increase steadily and are safer when the markets turn bearish. Besides, investors will be paid good dividends on a regular basis and are able to buy and sell the stocks at any time as they are liquid. In order to pick good stocks, you must use both fundamental and technical analysis. The best investment approach when dealing with good stocks is in the long-term, therefore, you should analyze a company’ fundamentals meticulously to see whether it is really undervalued or simply inefficient. Besides, companies that pay dividends regularly over the past three to five years are preferable. Technical analysis also contributes an important part of assessing a stock. Good stocks usually have tight price swings, so you should be tentative with the stocks having had strong pullbacks in the past.
Choosing a good broker to invest in stocks in the long-term is also important.