The stock market has been nothing if not volatile in 2022. The CBOE Volatility Index has skyrocketed 89% so far this year.
So you may want to consider low volatility stocks.
Volatility can be measured by beta. Stocks that don’t move much as the market gyrates up and down have a low beta. While stocks that move more than the market have a high beta.
Morningstar put together a list of stocks with one- and three-year betas of 0.8 or lower. Then it screened for stocks that are undervalued, according to Morningstar analysts’ fair value estimates. Morningstar chose only stocks with its five-star rating for most undervalued.
Finally, Morningstar also filtered for stocks assigned moats by Morningstar analysts, 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. Grifols (GRFS) , a Spanish pharmaceutical company. Discount to Morningstar’s fair value: 57%.
Grifols holds more than 20% the immunoglobulin market, according to Morningstar analyst Karen Andersen. “With several products under the same roof, Grifols is able to improve margins, as more of the proteins in plasma are turned into marketed products.”
2. HSBC Holdings (HBCYF) , the London-based bank. Discount to Morningstar’s fair value: 46%
“HSBC’s strengths are its positions in the U.K. and Hong Kong banking systems,” wrote Morningstar analyst Michael Wu. “The bank’s pivot toward Asia, which makes up about 75% of pretax profit, makes strategic sense,” given strong wealth in China, Hong Kong, and Singapore.
3. Baxter International (BAX) , a maker of medical products. Discount to Morningstar’s fair value: 35%
“Following the spinoff of Baxalta in mid-2015, Baxter’s new management team has focused on increasing efficiencies and innovating in medical products,” wrote Morningstar analyst Julie Utterback. “That focus has resulted in much-improved profitability and cash flow generation.”
4. Verizon Communications (VZ) , the telecommunications giant. Discount to Morningstar’s fair value: 33%
“Verizon will deliver consistent results over the long term, but growth will likely be modest,” wrote Morningstar analyst Michael Hodel. “Rivals AT&T (T) and T-Mobile (TMUS) offer comparable services and sell at similar prices.”
5. Roche (RHHBY) , the Swiss drug company. Discount to Morningstar’s fair value: 28%.
“Roche’s drug portfolio and industry-leading diagnostics conspire to create maintainable competitive advantages,” Andersen wrote. It’s the market leader in both biotechnology and diagnostics, and can push global healthcare in a positive direction, she said.
6. Berkshire Hathaway (BRK.B) , Warren Buffett’s conglomerate. Discount to Morningstar’s fair value: 25%.
“We continue to be impressed by Berkshire’s ability in most years to generate high-single- to double-digit growth in book value per share,” wrote Morningstar analyst Greggory Warren. The company won’t soon be greatly hampered by its massive size, he said.