History has shown us that it’s best to remain invested in the stock market for the long term. The market has recovered from temporary dips to print new all-time highs with 100% precision over the past century. Investors could buy low-volatility stocks to manage the tension triggered by bouts of market turbulence.
Once again, turbulence has returned to the stock market in 2022. High inflation, threats of rising interest rates, rising employment costs and rising geopolitical risks trigger market corrections as investors flee to safety.
It’s beneficial to focus on adding low volatility stocks to your core portfolio. Stable investment positions may dampen risk while maintaining respectable growth potential to improve your chances of meeting long-term investment objectives.
Shares in profitable mature businesses with notable competitive advantages, steady growth rates and positive cash flows are valuable in mitigating portfolio risks.
Such stocks should historically have been less volatile than the broad equities market. One mathematical measure called the beta can help screen for low volatility stocks.
A beta of 1.0 indicates a stock that rises and falls perfectly with the market index. A beta reading above 1.0 indicates higher volatility. A stock beta of less than 1.0 indicates shares have been relatively been more stable than the market.
Thus, stocks with low volatility and low beta readings could do well as market turbulence heightens in 2022. They reduce the risk of missing investing targets over the long term. They retain growth potential if the underlying businesses retain growth prospects, profitability and keep generating positive cash flow.
Here are seven potential low volatility stocks to buy for steady returns in 2022:
- Coca-Cola (NYSE:KO)
- Regeneron Pharmaceuticals (NASDAQ:REGN)
- Texas Instruments (NASDAQ:TXN)
- Infosys (NYSE:INFY)
- Garmin (NYSE:GRMN)
- Northrop Grumman (NYSE:NOC)
- Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B)
Low Volatility Stocks to Buy: Coca-Cola (KO)
A global leader in beverages manufacturing, the Coca-Cola Company retains strong moats and cash flow generation power across its business portfolios spread around the world.
The company faces relatively low labor costs across its global workforce. Its low labor-cost ratio could provide a layer of earnings protection if employment costs rise in the near term. Interestingly, the ages-old company remains innovative. However, that’s not KO stock’s best attribute right now.
Coca-Cola stock retains high popularity within the investing community. KO stock printed new 52-week highs going into the weekend before President’s Day. The company continues to generate profits and huge positive cash flows while making new investments that fortify its business from rising competition. No wonder KO retains high institutional ownership and remains attractive to investing legend Warren Buffett.
Historically, $10,000 invested in KO stock 10 years ago would be worth $71,916 today. This total return includes quarterly dividends the company religiously pays out. The current Coca-Cola dividend yields 2.9% annually.
Coca-Cola’s five-year monthly beta of 0.67 implies that KO stock has not been as volatile as the entire stock market during the period.
Regeneron Pharmaceuticals (REGN)
Global pharmaceuticals development giant Regeneron Pharmaceuticals doesn’t pay a regular dividend, but the company retains a market-leading profitability profile that makes it a defensive investment to make during crisis times.
Gross margins of over 80% make tech stocks look like practical jokes, and operating margins above 50% leave ample room for net profit margins to tower above 50% in an unbelievable show of profitability most publicly traded companies can only dream of. Regeneron is incredibly profitable and generates huge amounts of free cash flow for the business to reinvest in drug development programs.
A $10,000 investment in Regeneron stock 10 years ago would have grown to over $59,300 today.
Regeneron stock’s five-year monthly beta of 0.19 indicates share prices have largely been decoupled from the broader stock market.
Low Volatility Stocks to Buy: Texas Instruments (TXN)
Dallas-based Texas Instruments is a global semiconductor business that retains a high-profit badge in 2022. The company is ranked among the world’s largest makers of analog chips used to process real-world signals such as sound and power and it retains leading market share in microprocessor and micro-controller supply.
Texas Instruments’ stock price is up 113% over the past five years. Common stockholders receive a regular dividend, which yields 2.8% annually. The company increased its well-covered dividend by an average of 18% over the past five years and could keep doing so given a 10% five-year earnings growth rate outlook that analysts currently attach to the stock.
Most noteworthy, TXN stock’s five-year monthly beta of 0.92 indicates its share price has been relatively more stable than the broader equity market.
Infosys is a global information technology services provider with more than 1,700 active customers in over 50 countries at the end of 2021. Headquartered in India, the company generates more than 60% of its revenue from North America.
The company has been steadily growing its customer base with consistency to invoice more than $15.6 billion in revenue over the past twelve months. Interestingly, the company clinched expanding large deals which increased from $3 billion in fiscal year 2018 to $14 billion in fiscal year 2021.
Steady revenue growth, slow operating costs growth and strong operating profit margins of around 24% have characterized Infosys’s annual financial results over the past three years.
Most noteworthy is Infosys’s strong free cash flow generating business and its high dividend growth rates, which can help investors steadily build a wealth position over time. INFY stock has a 1.8% yielding dividend.
Infosys stock has returned 188% over the past five years. Wall Street analysts project a 20% revenue growth for 2022 and a good 14% annual earnings growth rate for the next five years. The return to investors could thus be substantial over the next five years.
INFY five-year monthly beta of 0.66 shows shares have been less volatile as compared to the broader stock market.
Low Volatility Stocks to Buy: Garmin (GRMN)
Garmin produces GPS-enabled hardware and software for the fitness industry, outdoors, auto industry, aviation and marine systems. The company licenses mapping data and operates in more than 100 countries. Revenue for 2021 showed a sixth consecutive year of growth to a record $4.98 billion (up 19% year-over-year) while earnings per share increased 8% annually to $5.63.
Earnings were negatively impacted by the supply chain crisis and associated rising freight costs in 2021. The result has been a short-term plunge in Garmin stock since August last year to provide interesting entry points into a strong business before the logistics crisis abates.
Garmin’s gross margins remain high at 58% and its operating profit margin for 2021 was a staggering 22%. Supply chain pressures could begin to ease in 2022 and that could mean a return to higher margins and steady stock price growth.
Analysts closely following the business forecast an 9.8% revenue growth for 2022 to be followed by a 7.7% sales growth in 2023. GRMN stock is up 107% over the past five years. The company could keep increasing its dividends. Garmin has increased its quarterly dividend consistently for years, and it stands now at 2.4%. This could augment annual returns over time.
Garmin stock’s five-year monthly beta of 1.0 matches that of the broader market.
Northrop Grumman (NOC)
Multinational aerospace and defense technology company Northrop Grumman is a low-volatility stock to buy for steady long-term returns. Talks of a potential European war are all over the place. A Russian aggression over Ukraine has taken center stage in many war rooms. There could be long-term consequences.
No country would sit idle and wish its potential national security troubles away as news of potential wars bombard television screens, theatrics happen in the South China Sea and as North Korea keeps testing advanced intercontinental weapons. Defense spending could soar this decade, and Northrop Grumman could enjoy more business and increased cash flows.
Most noteworthy, Northrop Grumman recently developed a bigger and better defense system. Its latest Surface Electronic Warfare Improvement Program (SEWIP) for Navy systems could rack in billions in revenue and earnings for the defense contractor. SEWIP Block 3 promises early detection of missile threats to U.S. warships and could target a larger addressable market than its predecessor, Lockheed Martin’s (NYSE:LMT) SEWIP Block 2.
The company services and upgrades sold equipment for customers. Such contracts earn it more revenue and profits on top of initial production and installation invoices.
That’s not all. Northrop Grumman also has $76 billion revenue backlog, growing annual sales run rates and more than $3.6 billion in 2021 operating cash flow. Stable revenue and strong cash flows offer investors a low-volatility stock with steady returns potential during periods of market turmoil.
Dividend increases and share repurchases are working well to boost shareholder returns. NOC stock has a five-year monthly beta of 0.84.
Low Volatility Stocks to Buy: Berkshire Hathaway (BRK-A, BRK-B)
Led by investing legend Warren Buffett, Berkshire Hathaway owns an impressive portfolio of well-run businesses that mostly generate positive earnings and positive free cash flows.
Berkshire’s core businesses (including the railroad and insurance segments) generate stable growth and huge cash flows annually. Management uses such free cash flows to invest in other companies. Moreover, the company’s investments portfolio is an interesting return generator with more than $331 billion in invested capital.
The portfolio’s Apple (NASDAQ:AAPL) position (44.3% of portfolio assets) and Bank Of America (NYSE:BAC) (13.5% of the portfolio) dominate holdings and have earned the portfolio stable dividend income.
Under two younger portfolio managers Ted Weschler and Todd Combs — who remain under Warren and Charlie Munger’s mentorship — Berkshire Hathaway made headway into Web 3.0 (the internet’s largely decentralized future) as it scooped shares in gaming giant Activision Blizzard (NASDAQ:ATVI) before Microsoft (NASDAQ:MSFT) decided to snatch the whole business for itself in an acquisition.
There are times when Berkshire stock may underperform the broader market as fads come and go. However, investors seeking stable, high probability returns shouldn’t think twice about adding shares to their main portfolios.
Past returns may not be indicative of future performance. That said, $10,000 invested in Berkshire Hathaway stock 10 years ago would be worth $39,530 today. BKB-B’s five-year stock beta of 0.86 implies that shares have been less volatile as compared to the broader market.
On the date of publication, Brian Paradza did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Brian Paradza is an investing enthusiast who was awarded the CFA Charter in 2019. A strong believer in fundamentals-based long-term investing, Brian learns from gurus like Warren Buffett but acknowledges human behavioral tendencies that drive short-term “madness”. You may find him inquisitive as he examines tech investing opportunities, cannabis, blockchains and the new cryptocurrencies asset class.