The stock market has been volatile in 2022. The CBOE Volatility Index has soared 89% so far this year.
Therefore, you may want to consider low volatility stocks.
Volatility can be measured by beta. Stocks that don’t move much as the market swings up and down have a low beta. Whereas stocks that move more than the market have a high beta.
Morningstar compiled a list of stocks with one- and three-year betas of 0.8 or less. Next, he looked at stocks that are undervalued, based on Morningstar analysts’ fair value estimates. Morningstar chose only stocks with its five-star rating for the most undervalued.
Finally, Morningstar also filtered out stocks that Morningstar analysts have assigned to moats, indicating competitive advantages over their peers. Here are the six stocks in order of their discount to Morningstar’s fair value estimate as of Sept. 26:
1. scribbles (GRFS) , a Spanish pharmaceutical company. Morningstar discount to fair value: 57%.
Grifols has more than 20% of the immunoglobulin market, according to Morningstar analyst Karen Andersen. “With multiple products under one roof, Grifols is able to improve margins as more plasma proteins are converted into marketed products.”
2. HSBC Holdings (HBCYF) , the London-based bank. Morningstar discount to fair value: 46%
“HSBC’s strengths are its positions in the UK and Hong Kong banking systems,” wrote Morningstar analyst Michael Wu. “The bank’s pivot to Asia, which accounts for around 75% of pre-tax profits, makes strategic sense,” given strong wealth in China. Hong Kong and Singapore.
3. Baxter International (LOW) , manufacturer of medical products. Discount to Morningstar Fair Value: 35%
“Following the spin-off of Baxalta in mid-2015, Baxter’s new management team has focused on increasing efficiency and innovating in medical products,” wrote Morningstar analyst Julie Utterback. “This approach has resulted in greatly improved profitability and cash flow generation.”
4. Verizon Communications (VZ) , the telecommunications giant. Discount to Morningstar Fair Value: 33%
“Verizon will deliver consistent results over the long term, but growth will likely be modest,” Morningstar analyst Michael Hodel wrote. “Rivals AT&T (T) and T-Mobile (TMUS) offer comparable services and sell at similar prices”.
5. Roche (RHHBY) , the Swiss pharmaceutical company. Morningstar discount to fair value: 28%.
“Roche’s drug portfolio and industry-leading diagnostics conspire to create sustainable competitive advantages,” Andersen wrote. It is the market leader in both biotech and diagnostics, and can push global health in a positive direction, he said.
6. Berkshire Hathaway (BRK.B) , Warren Buffett’s conglomerate. Morningstar Fair Value Discount: 25%.
“We continue to be impressed by Berkshire’s ability over most years to generate high single- to double-digit growth in book value per share,” wrote Morningstar analyst Greggory Warren. The company won’t be hampered much anytime soon by its massive size, he said.
