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7 Good Stocks to Own in a Bad Market


Despite punk corporate profits, the stock market has recovered nearly all of the losses it suffered earlier this year and is trading near record highs. Stocks look expensive, particularly on a price-earnings basis. Meanwhile, yields on bonds and money market funds continue to range from poor to pathetic. What’s an investor to do?

One solution is to build a portfolio of low-volatility stocks. Should the market suffer another correction—or worse—low-vol stocks should hold up better than other issues. The problem is that lately low-vol stocks have been as popular as Scarlett O’Hara at a picnic, causing investors to bid up their prices to sometimes-uncomfortable levels.

And keep in mind that low volatility combined with high valuations will probably translate to lower long-term returns, says John Ameriks, global head of Vanguard’s Quantitative Equity Group. “When the market is down, we expect this strategy to not suffer as much, but there’s a flip side,” he says. “When the market moves up sharply, a low-volatility portfolio probably won’t match it.”

We've identified seven low-vol stocks that should hold up better than the overall market when the bear returns. For each stock, we list its five-year beta, a measure of how closely performance tracks Standard & Poor’s 500-stock index. A beta of 1 suggests a close link with the index; a beta of 0.1 suggests almost no connection. We also list five-year relative volatility, which shows how much a stock’s price has swung up and down over the past five years relative to the swings in the S&P 500. A figure of, say, 1.1 suggests that the stock has been only 10% more volatile than an index consisting of 500 stocks—a neat trick.

Prices and related data are as of April 25. Price-earnings ratios are based on estimated year-ahead profits.

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