JPMorgan says it’s time to buy unloved safe stocks that pay dividends
JPMorgan sees a buying opportunity in one unloved corner of the stock market — and investors are paid to wait for that upside. Low-volatility stocks in the United States and Europe have done very poorly over the past few months, moving in the opposite direction of rising bond yields, said Mislav Matejka, the bank’s head of global and European equity strategy. The companies are those with the lowest variation in price moves and are typically in sectors such as consumer staples, healthcare, utilities and insurance, as well as industrials, Matejka said in a note Tuesday. They also generally pay solid dividends. So far this year, so-called low vol stocks have had an inverse correlation with bond yields, with the subset of U.S. equities falling by 6% since the start of the Middle East conflict while bond yields have risen 55 basis points, he noted. One basis point equals 0.01%, and yields and prices move in opposite directions. On Tuesday, Treasury yields fell amid hopes for an Iran peace deal. “If bond yields continue to stabilize from here, low vol stocks could catch a bid, similar to earlier this year when the group was rallying as bond yields fell,” Matejka wrote. On the other hand, if bond yields were to spike, with the 10-year Treasury moving toward 5%, low volatility stocks could also break their inverse correlation with bond yields and start to trade relatively better, he noted. The strategist expects lower yields in the medium term. “The … low Vol trade is worth considering now given the attractive entry point on the back of past weakness, and given that it is likely to work in a range of macro scenarios from here,” Matejka said. “Put another way, the trade is not conditional on the overall market moving lower. Ahead of the Iran conflict, low Vol outperformed during a strongly rising broader equity market.” JPMorgan’s low volatility index includes several stocks the firm rates overweight. Here are several: Coca-Cola pays a 2.6% dividend yield and remains in the green so far this year. But the soft drink giant, a long-time favorite of billionaire Warren Buffett, is little changed over the last three months — despite posting first-quarter earnings solidly beating estimates in late April. Coca-Cola also raised its full-year guidance, and now projects comparable earnings per share growth of 8% to 9%, up from a prior forecast of 7% to 8%, thanks to lower effective tax rates. Executives said they have seen higher demand for its beverages and expressed confidence the company would be able to navigate the uncertainty caused by the Iran War. “Notwithstanding volatility in certain commodities, like tea and coffee, we believe the overall impact on our cost basket is manageable at this time,” chief financial officer John Murphy said then. Coke has an average rating of overweight and almost 9% upside to the average price target, according to FactSet. Rollins is also a Wall Street favorite, with an average rating of overweight and nearly 22% upside to the average price target, FactSet data shows. Investors earn a 1.37% dividend yield on the stock. ROL YTD mountain Rollins year to date The pest control company’s recent investor day received glowing reviews from many analysts. Among them was Morgan Stanley’s Greg Parrish, who noted Rollin’s “unique go-to-market strategy and culture of service.” “We see strong tailwinds, a long runway, and expect industry leading execution to continue,” he wrote in a May 15 note. Still, shares lost nearly 11% in the last three months. Procter & Gamble has also had a rough three months, falling about 13%. The stock yields 3.01%. PG YTD mountain Procter & Gamble year to date The maker of brands such as Tide, Pampers and Crest reported quarterly earnings and revenue that beat analysts’ expectations. But it put off providing guidance for fiscal 2027 until its next earnings report in July due to uncertainty around the Iran war’s impact on costs and consumer spending. “I would say, right now, the consumer in the U.S. is stable,” chief financial officer Andrew Schulten said on a call with reporters. “We see the bifurcation of the consumer segments continuing.” Analysts covering Procter & Gamble give it an average rating of overweight. The stock has about 15% upside to reach analysts’ average price target, according to FactSet.
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