The stock market has been nothing if not choppy in 2022. The CBOE Volatility Index is up 89% so far this year.
So you may want to consider low volatility stocks.
Volatility can be measured using beta. Stocks that don’t move much as the market moves up and down have a low beta. While stocks that move more than the market have a high beta.
Morningstar has compiled a list of one- and three-year beta stocks with a value of 0.8 or less. Then he examined stocks that were undervalued, according to Morningstar analysts’ fair value estimates. Morningstar chose stocks with a five-star rating for the most undervalued stocks.
Finally, Morningstar has also filtered stocks assigned to trenches by Morningstar analysts, indicating competitive advantages over their peers. Here are the six stocks in order of discounting to Morningstar’s fair value estimate as of September 26:
1. Grifols (GRFS) Spanish pharmaceutical company. Morningstar fair value discount: 57%.
Grifols has more than 20% of the immunoglobulin market, according to Morningstar analyst Karen Andersen. “With so many products under the same roof, Grifols is able to improve margins, as more proteins in the plasma are converted into marketed products.”
2. HSBC Holdings (HBCYF) , based in London. Morningstar fair value discount: 46%
“HSBC’s strengths lie in its positioning in the UK and Hong Kong banking systems. The bank’s pivot to Asia, which makes up about 75% of pre-tax earnings, makes strategic sense,” wrote Morningstar analyst Michael Wu, given the strong wealth in China, Hong Kong and Singapore.
3. Baxter International (pax) , a manufacturer of medical products. Morningstar fair value discount: 35%
Morningstar analyst Julie Otterback writes, “Following the Baxalta split in mid-2015, the new Baxter management team focused on increasing efficiencies and innovation in medical products. This focus has significantly improved profitability and cash flow generation.”
4. Verizon Communications (VZ) Telecom giant. Morningstar fair value discount: 33%
“Verizon will deliver consistent results over the long term, but growth is likely to be modest,” Morningstar analyst Michael Hodel wrote. AT&T competitor (T) and T-Mobile (TMUS) Offer comparable services and sell them at similar prices.”
5. rush (RHHBY) Swiss pharmaceutical company. Morningstar fair value discount: 28%.
“Roche’s combination of industry-leading drugs and diagnostics conspire to create sustainable competitive advantages,” Andersen wrote. She said it is the market leader in both biotechnology and diagnostics, and it can drive global healthcare in a positive direction.
6. Berkshire Hathaway (BRK.B) Warren Buffett conglomerate. Morningstar fair value discount: 25%.
“We continue to admire Berkshire’s ability for most years to deliver high single- to double-digit growth in book value per share,” Morningstar analyst Gregory Warren wrote. He said the company will soon not be affected significantly due to its sheer size.