Investing in a Volatile Market

02/12/2016 9:00 am EST


Charles Carlson

Editor, DRIP Investor

One way to trim some risk in a volatile market—while still allowing you to maintain positions in quality stocks—is to focus on stocks that score well in my firm’s “Relative Risk” ratings, explains Chuck Carlson, editor of DRIP Investor.

To evaluate volatility, we group stocks into five risk categories ranging from low to high—based on five volatility measures—in order to reflect a stock’s downside potential risk and sensitivity to both rising and falling markets.

All of the stocks listed below are ranked either Low or Below Average in our ratings. That doesn’t mean it won’t go down during down markets. Rather, it means the stock has typically held up better than the broad market during bear markets.

Allete (ALE)—yielding 4%
Amgen (AMGN)—yielding 2.6%
Boeing (BA)—yielding 3.5%
Comcast (CMCSA)—yielding 1.8%
CVS Health (CVS)—yielding 1.8%
Disney (DIS)—yielding 1.5%
Equifax (EFX)—yielding 1.1%
Foot Locker (FL)—yielding 1.5%
Horizon Bancorp (HBNC)—yielding 2.3%
Public Service (PEG)—yielding 3.9%
Scana (SCG)—yielding 3.6%
Skyworks Solutions (SWKS)—yielding 1.6%
Southwest Airlines (LUV)—yielding 0.8%
Starbucks (SBUX)—yielding 1.4%
Travelers (TRV)—yielding 2.4%
TriCo Bancshares (TCBK)—yielding 2.4%
Tyson Foods (TSN)—yielding 1.2%
Verizon (VZ)—yielding 4.8%
Wal-Mart Stores (WMT)—yielding 3.1%
Wells Fargo (WFC)—yielding 3.1%

All of the stocks also offer DRIPs, with most offering the ability to buy even initial shares directly.

A number of stocks come from sectors that are perceived as having defensive characteristics; that is, the sectors are viewed as safe havens of sorts during volatile markets.

Utilities are typically such a defensive group and the action of utility stocks, so far, this year has been in line with its safe haven reputation.

I especially like Scana (SCG), a utility company based in South Carolina. It represents a quality holding in the group and a top-shelf pick among lower-risk stocks.

Also on the list are some healthcare-related stocks, including biotechnology giant Amgen (AMGN) and drugstore operator CVS (CVS).

Both stocks are high quality plays that should exhibit less volatility than the broad market. Both are buys at current prices.

Financial services stocks are represented on the list. Two regional banks that are not household names but I find especially attractive are Horizon Bancorp (HBNC) and TriCo Bancshares (TCBK).

Horizon, based in Michigan City, Indiana, is located in my backyard and has an excellent reputation and decent performance history.

TriCo, based in Chico, California, is another regional bank offering a nice mix of lower volatility and decent total return potential.

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