In this piece, we will take a look at the 12 best low beta stocks to buy. If you want to skip our introduction to the latest stock market news and the beta, then take a look at the 5 Best Low Beta Stocks To Buy.
If there's one thing that can be said with certainty about the stock market is that it is one of the riskiest investment mediums in the financial industry. As much as one can financially analyze stocks and the broader macroeconomic environment, the element of risks still persists in individual stocks as well as indexes.
One way in which analysts and investors try to quantify individual stock risk is the beta. For those out of the loop, a stock's beta measures its tendency to respond to stock market movements. In technical terms, a beta is a 'volatility' indicator, that calculates whether a stock can post returns in line with the market, greater than market returns, or lesser than market returns. If a stock's beta is greater than 1, then it can post more returns than the market, if it is less than 1 then returns are lower than the market, and if the beta is less than zero, then if the market is in positive return territory then the stock posts negative returns.
For instance, consider stocks A, B, and C with betas of 1.5, 0.5, and -0.5. Assuming that the market is returning 10% over a month, then the returns for A, B, and C should sit at 15%, 5%, and -5%, respectively. However, just as is the case with most things finance, there isn't one kind of beta. In fact, the two most common kinds of beta that analysts deal with are the levered and un-levered betas when it comes to security analysis. The levered beta of a stock multiplies the post tax value of its debt to equity ratio with the un-levered beta to compute a value corresponding to the operational and debt risks of a firm. On the flip side, the un-levered beta simply looks at the operations risks of a firm and ignores its debt.
So, the next question to ask is what influences a firm's beta? Well, the mathematical computation of the value simply accounts for the variance between a stock's share price returns and the returns of a stock index such as the S&P500. In other words, the beta is equal to the value of the covariance between a stock's return and the market's return, divided by the variance of the market's returns to a mean. Therefore, the more the share price of a security fluctuates in a given trading period relative to the market, the greater its beta will be, and therein lies our answer to the question asked at the start of this paragraph.
As an illustration, consider the technology industry which is typically characterized by sharp returns as investors flock to big ticket names even at the slightest hint of disruption and abandon the stocks just as fast in case of turbulence. This makes the technology industry have one of the highest betas on the stock market, with data from Aswath Damodaran of NYU Stern showing that the semiconductor equipment industry has a high beta of 1.79. On the other hand, grocery and food retailers have a beta of 0.67, which is natural since people are unlikely to stop buying groceries anytime soon.
Shifting gears to the stock market, these days investors are finally taking some well deserved sighs of relief. This is because November started off with the Labor Department releasing non farm payrolls data for the U.S. for the month of October. The data revealed that non farm payrolls increased by 150,000 in October, with the unemployment rate rising to 3.9% from 3.8%. These undershot analyst and economist estimates, and provided stimulus to the stock market as investors bet that the Federal Reserve was done hiking interest rates. As a result, all major U.S. stock indexes gained roughly 2% on average and the U.S. dollar fell against a basket of comparable currencies. However, a big portion of the non farm payroll miss came as America's largest car companies, General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F), and Stellantis N.V. (NYSE:STLA), dealt with historic union strikes, so should this resolve, then the payrolls could see a rise in the near future.
With these details out of the way, let's take a look at the best low beta stocks that hedge funds are buying. The top three picks are T-Mobile US, Inc. (NASDAQ:TMUS), Eli Lilly and Company (NYSE:LLY), and The Cigna Group (NYSE:CI).
12 Best Low Beta Stocks To Buy
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Our Methodology
To compile our list of the best low beta stocks, we ranked the top 40 holdings of the ETC 6 Meridian Low Beta Equity Strategy exchange traded fund. Then, those with the highest number of hedge fund investors as of this year's second quarter were determined courtesy of Insider Monkey's database of 910 hedge funds and the top low beta stocks are as follows.
Neurocrine Biosciences, Inc. (NASDAQ:NBIX) is an American healthcare company that focuses on nervous system disorders and mental health diseases. It marks a strong start to our list since the shares are rated Strong Buy on average and analysts have priced in a $21 share price upside over the current share price of $112.
As of Q2 2023 end, 46 out of the 910 hedge funds tracked by Insider Monkey had invested in Neurocrine Biosciences, Inc. (NASDAQ:NBIX). Steven Boyd's Armistice Capital owns the biggest stake among these which is worth $155 million.
Just like T-Mobile US, Inc. (NASDAQ:TMUS), Eli Lilly and Company (NYSE:LLY), and The Cigna Group (NYSE:CI), Neurocrine Biosciences, Inc. (NASDAQ:NBIX) is a great low beta stock that hedge funds are buying.
Lamb Weston Holdings, Inc. (NYSE:LW) is a frozen food company with operations in the U.S. In an investor letter issued in November, investment firm The London Company outlined that Lamb Weston Holdings, Inc. (NYSE:LW) might face excess capacity problems, but management has taken effective steps to address the weakness.
During this year's second quarter, 47 out of the 910 hedge funds profiled by Insider Monkey were the firm's shareholders. Lamb Weston Holdings, Inc. (NYSE:LW)'s largest hedge fund shareholder is Sharlyn C. Heslam's Stockbridge Partners through its $345 million investment.
Vistra Corp. (NYSE:VST) is an unsurprising top low beta stock to buy since it is a utility company that sells electricity. The firm is currently gearing up to release its third quarter results, and it kicked off earnings season by announcing a 21.3 cent quarterly dividend per share for its common stock.
After digging through 910 hedge funds for their June quarter of 2023 shareholdings, Insider Monkey discovered that 48 had invested in Vistra Corp. (NYSE:VST)'s shares. Howard Marks's Oaktree Capital Management is the firm's largest shareholder in our database as it owns 17 million shares that are worth $446 million.
Chubb Limited (NYSE:CB) is an insurance and reinsurance company that provides travel, liability, and other insurance products. The firm had a strong third quarter, as its financial results revealed that its year to date net income per share jumped by 48.9% annually while operating income set a new record.
Insider Monkey took a look at 910 hedge fund portfolios for this year's June quarter and discovered that 50 had bought the insurance company's shares. Chubb Limited (NYSE:CB)'s biggest hedge fund investor is Israel Englander's Millennium Management as it owns $291 million worth of shares.
Verizon Communications Inc. (NYSE:VZ) is an American telecommunications carrier. Like other internet service providers, it is also investing heavily in fiber optic networks, and results from a trial in Long Island, New York in November 2023 showed stunning speeds of 1.2Tbps.
During 2023's June quarter, 53 among the 910 hedge funds tracked by Insider Monkey had held a stake in Verizon Communications Inc. (NYSE:VZ). Out of these, the firm's largest hedge fund investor is Peter Rathjens, Bruce Clarke, and John Campbell's Arrowstreet Capital through its $489 million stake.
Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is a mid sized biotechnology firm that focuses on making treatments for fibrosis, hypertension, and cancer. The firm is currently operating in rather exciting times, as the Food and Drug Administration is evaluating its CRISPR gene editing therapy for the deadly sickle cell disease.
Insider Monkey scoured through 910 hedge fund portfolios for this year's second quarter and found that 54 were the firm's investors. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)'s biggest shareholder among these is Jim Simons' Renaissance Technologies due to its $447 million investment.
AT&T Inc. (NYSE:T) is another telecommunications carrier. The firm has been performing well in a tough economy, as it has beaten analyst EPS estimates in all four of its latest quarters. AT&T Inc. (NYSE:T) also pays a 28 cent dividend for a 6.99% yield.
56 out of the 910 hedge funds polled by Insider Monkey had bought and invested in AT&T Inc. (NYSE:T)'s shares as of Q2 2023. Out of these, the largest stakeholder is Peter Rathjens, Bruce Clarke, and John Campbell's Arrowstreet Capital as it owns 21 million shares that are worth $339 million.
T-Mobile US, Inc. (NASDAQ:TMUS), Eli Lilly and Company (NYSE:LLY), and The Cigna Group (NYSE:CI) are some top low beta stocks to buy.
