In this article, we discuss the 10 best low beta stocks to buy along with the latest updates around the broader market.
After a rough few years, the market is coming together and is on a healthy trajectory. The recent Fed rate cuts triggered a lot of bullish sentiment toward the broader market. For example, on September 20, Business Insider reported that Brian Belski from BMO raised his S&P 500 price target for 2024 to 6,100 from 5,600, followed by the Fed’s recent rate cut and strong seasonal market data.
Moreover, Belski talked about broadening stock market gains and the increased likelihood of a soft landing for the U.S. economy. He finds current elevated valuations justified as he compared the situation to the mid-1990s when the market sustained high multiples.
In addition, Tom Lee of Fundstrat is bullish on the market for several upcoming years and expects the broader market to nearly triple to 15,000 by 2030. His bullish sentiment is driven by demographic shifts, millennial spending, and technology advancements. He mentioned the prime earning years of millennials and Gen Z, which mirror previous periods of high stock market returns. Furthermore, he also highlighted the role of technology in addressing global labor shortages and projects significant spending on AI and tech solutions.
Broadening Market Participation and the Outlook for Recession Risks
On September 24, Prashant Bhayani of BNP Paribas Wealth Management joined CNBC to discuss the current market conditions. He discussed the improving liquidity and noted the tight credit spreads, near-record equities, and steady lending. While U.S. hiring is slowing, he explained that rising unemployment is partly due to labor force growth, not just layoffs, which makes it different from past cycles. Bhayani stressed that employment data, like jobless claims, will be important in determining market outlooks.
On market valuations, Bhayani acknowledged some sectors are overvalued but sees broader market participation beyond AI-related stocks. He suggested that stocks could outperform bonds if a soft landing or no recession occurs.
Addressing concerns about potential triggers for volatility, Bhayani said that a credit event, similar to those seen in 2000 or 2007, could lead to significant market declines. However, current credit spreads and a healthy banking system support the soft landing view.
With that, we look at the 10 Best Low Beta Stocks To Buy.
10 Best Low Beta Stocks To Buy
Our Methodology
For this article, we used the Yahoo Finance stock screener to identify over 30 mid to mega-cap stocks with a 5-year beta (monthly) between 0.2 to 0.8. Next, we narrowed the list to 10 stocks most widely held by institutional investors. The 10 best low-beta stocks to buy are listed in ascending order of their hedge fund sentiment and we used the beta as a tie-breaker as well.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Low Beta Stocks To Buy
10. L3Harris Technologies, Inc. (NYSE:LHX)
5-year Beta (monthly): 0.73
Number of Hedge Fund Holders: 40
L3Harris Technologies, Inc. (NYSE:LHX) is well-known in the aerospace and defense sectors, providing essential mission-critical solutions to both government and commercial clients across the globe. The company was established through the merger of L3 Technologies and Harris Corporation in 2019, the company operates through four main business segments, Integrated Mission Systems, Space and Airborne Systems, Communication Systems, and Aviation Systems.
The segments’ offerings allow it to offer a wide range of products and services, including advanced electronic systems, intelligence, surveillance, reconnaissance (ISR) technologies, and pilot training solutions, effectively serving a variety of sectors from defense to commercial aviation. It takes the 10th place on our list of the best low beta stocks to buy.
2024 has seen the company securing several key contracts in the aerospace and defense landscape. On September 12, it was awarded a substantial five-year contract valued at up to $587.4 million from the U.S. Navy. The contract is focused on developing the Next Generation Jammer – Low Band (NGJ-LB) system, which aims to enhance the Navy’s aerial electronic warfare capabilities. Additionally, the company is set to deliver eight operational prototype pods for fleet assessment, further strengthening its position in this area.
Another significant development came on September 17, when L3Harris (NYSE:LHX) received a $142 million contract for Photonics Mast Depot repair services. The contract shows the company’s capability to provide ongoing support and maintenance for sophisticated defense systems, with work expected to extend through 2029. Such long-term contracts not only provide steady revenue but also highlight the trust that government agencies place in the company’s expertise.
Furthermore, it is making strides in the space sector. In August, the company partnered with Firefly Aerospace, Inc., which includes provisions for up to 20 launches on Firefly’s Alpha rocket. The agreement improves its ability to support satellite deployment missions, a growing area of importance as global demand for satellite services continues to rise.
At a stake value of $1.2 billion, 40 hedge funds held positions in L3Harris (NYSE:LHX) in the second quarter. As of Q2, Diamond Hill Capital is the top shareholder in the company and has a position worth $334.428 million.
9. Canadian National Railway Company (NYSE:CNI)
5-year Beta (monthly): 0.65
Number of Hedge Fund Holders: 42
One of the best low beta stocks, Canadian National Railway Company (NYSE:CNI) is a well-known player in the transportation and logistics sector, operating an extensive network that connects Canada and the United States.
The company offers a comprehensive range of services, including rail transport, intermodal logistics, trucking, and marine shipping. With approximately 20,000 route miles of track, it serves diverse industries such as automotive, coal, agriculture, and chemicals, providing essential supply chain solutions for its customers.
In Q2, 42 hedge funds had investments in Canadian National (NYSE:CNI), with positions worth $11.938 billion. Bill & Melinda Gates Foundation Trust is the top investor in the company as of Q2 and has a stake worth $6.476 billion.
Despite some recent challenges, the company remains focused on long-term growth. The company has adjusted its expectations for diluted EPS growth, now projecting low single-digit increases. Additionally, it expects a return on invested capital in the range of 13% to 15%.
Analysts have adjusted their price targets for Canadian National (NYSE:CNI). In September, Raymond James analyst Steve Hansen, BMO Capital analyst Fadi Chamoun, Scotiabank, and National Bank analyst Cameron Doerksen maintained an Outperform rating with a price target of C$180, C$178, C$180, and C$181, respectively. It indicates confidence in the company’s future performance despite short-term setbacks.
The recent guidance reductions have been attributed to various factors, including a labor work stoppage, wildfires in Alberta, and weaker demand in key sectors like forest products and metals. However, some analysts note that these challenges were largely expected, suggesting that the company has a strong foundation to weather these fluctuations.
BMO Capital also mentioned that currently, the stock trades at a 9% discount to its five-year historical average, which points to potential upside for investors.
Furthermore, the company’s diversified service offerings and extensive operational capabilities position it well to capitalize on recovering market demands. While analysts have lowered price targets slightly, the overall sentiment remains positive regarding its resilience and ability to navigate through these temporary hurdles.
