In this article, we discuss the 13 best low volatility stocks to buy according to hedge funds. To skip the detailed analysis of the current market conditions, go directly to the 5 Best Low Volatility Stocks to Buy According to Hedge Funds.
The S&P 500 had a remarkable year in 2023 and the first quarter of this year presented itself as if the bull run will keep charging toward growth. However, it has taken a step back over the past month and declined nearly 2.5%. In addition, the index showed a loss of 4.4% since its peak in March, at April 17 market close. On April 16, US Treasury bonds hit their highest in the last six months as geopolitical conditions surrounding the Middle East conflict and the high interest rates continue to threaten the global financial markets. On April 16, the US 10-year Treasury yield was 4.67%. Furthermore, The Merrill Lynch Option Volatility Estimate Index reached its highest since January 1 on April 15 to 121.15. While the CBOE Volatility Index (^VIX) is still under 20, it touched its highest point since October 30. VIX was at 19.23 on April 15.
Maybe It’s Not All Doom and Gloom
Although some investors like Cole Smead of Smead Capital have quite a bleak view of the US market over the next decade, many others still consider the current conditions nothing more than a little hitch. Smead sees a significant chance of interest rate hikes rather than cuts and predicts negative real returns from the S&P 500 over the next decade. For more information on this, go to 12 Ridiculously Cheap Stocks to Buy.
According to a BlackRock, Inc. (NYSE:BLK) report published on April 14, the firm sees a shift in earnings growth beyond the tech sector, particularly toward industrials and materials. The firm says that despite the concerns over Middle East tensions impacting crude oil prices and inflation, the overall performance of the U.S. economy has been robust. BlackRock, Inc. (NYSE:BLK) believes that other indicators such as GDP growth, employment numbers, and consumer spending show that the economy is quite healthy. Moreover, analysts are predicting US corporate earnings to grow by 11% this year compared to the 7% historical average. BlackRock, Inc. (NYSE:BLK) made the following comments in its report:
“For Q1 earnings results now underway, we expect further strength for tech and other artificial intelligence (AI) beneficiaries. Yet we see earnings growth broadening out as consumers start to show some signs of fatigue and demand improves in other sectors. Earnings for energy and commodity producers are picking up after a rough two years. We think higher commodity prices can persist and boost both, with the FTSE/CoreCommodity CRB index up 14% this year and near a decade high.“
AI Showing No Signs of a Bubble
On April 18, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) released its Q1 2024 earnings report. The company reported a revenue of NT$592.64 billion (NT$1 = US$0.031), up 16.5% year-over-year, and a net income of NT$225.49 billion, showing an increase of 8.9% from Q1 2023. In the next quarter, the company expects revenue to be between US$19.6 billion and US$20.4 billion, up from the previous $19.1 billion forecast. While the slump in the smartphone market poses a threat to the company’s revenues, Taiwan Semiconductor Manufacturing Company Limited’s (NYSE:TSM) officials say that the AI-chip demand is extremely high. At its latest earnings call presentation, the CEO C.C. Wei said:
The continued surge in AI-related demand supports our already strong conviction that structural demand for energy-efficient computing is accelerating in an intelligent and connected world. “TSMC is a key enabler of AI applications. AI technology is evolving to use ever increasingly complex AI models, which needs to be supported by more powerful semiconductor hardware. No matter which approach is taken, it requires use of the most advanced semiconductor process technologies.
Thus, the value of our technology position is increasing as customers rely on TSMC to provide the most advanced process and packaging technology at scale with a dependable and predictable cadence of technology offering. In summary, our technology leadership enable TSMC to win business and enables our customer to win business in their end market. Almost all the AI innovators are working with TSMC to address the insatiable AI-related demand for energy-efficient computing power. We forecast the revenue contribution from several AI processors to more than double this year and account for low-teens percent of our total revenue in 2024.
For the next five years, we forecast it to grow at 50% CAGR and increase to higher than 20% of our revenue by 2028. Several AI processors are narrowly defined as GPUs, AI accelerators and CPU’s performing, training, and inference functions and do not include the networking edge or on-device AI. We expect several AI processors to be the strongest driver of our HPC platform growth and the largest contributor in terms of our overall incremental revenue growth in the next several years. Now let me talk about our global manufacturing footprint update.”
Even though the current declines in the broader market indexes seem like minor corrections that have already been predicted by experts, the geopolitical conditions around the globe are causing the markets to show some signs of volatility. For such conditions, you can check out the best low volatility ETFs and stocks. Let’s now take a look at the best low volatility stocks which include Microsoft Corporation (NASDAQ:MSFT), Visa Inc. (NYSE:V), and Berkshire Hathaway Inc. (NYSE:BRK-B).
13 Best Low Volatility Stocks to Buy According to Hedge Funds
Our Methodology
For this article, we used the Yahoo Finance stocks screener to identify over 40 large to mega-cap stocks with a 5-year monthly beta of under 1, as of April 17. We narrowed down our list to 13 stocks most widely held by institutional investors. The stocks are listed in ascending order of their hedge fund sentiment.
The hedge fund data was taken from Insider Monkey’s database of 933 elite hedge funds. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
13 Best Low Volatility Stocks to Buy According to Hedge Funds
13. Elevance Health, Inc. (NYSE:ELV)
5-yr Monthly Beta: 0.81
Number of Hedge Fund Holders: 83
Elevance Health, Inc. (NYSE:ELV) is a health benefits company that offers its services through its brands, Anthem Blue Cross and Blue Shield, Wellpoint, and Carelon.
In Q4 of 2023, 83 hedge funds held positions in Elevance Health, Inc. (NYSE:ELV) and their total stakes amounted to $5.803 billion. As of the fourth quarter of 2023, Jean-Marie Eveillard’s First Eagle Investment Management is the most significant shareholder in the company and has a position of $838.663 million.
Based on 11 Wall Street analysts’ ratings over the past three months, Elevance Health, Inc. (NYSE:ELV) has a consensus rating of Strong Buy. The average price target of $582.70 implies an upside of 14.39% from the last price of $509.40, as of April 17.
Elevance Health, Inc. (NYSE:ELV) has garnered the attention of institutional investors. Other such stocks include Microsoft Corporation (NASDAQ:MSFT), Visa Inc. (NYSE:V), and Berkshire Hathaway Inc. (NYSE:BRK-B).
Artisan Partners stated the following regarding Elevance Health, Inc. (NYSE:ELV) in its fourth quarter 2023 investor letter:
“Our top seven holdings are American Express (the world’s leading premium closed loop credit card network operator), Samsung Electronics (the leading global manufacturer of memory semiconductors), Berkshire Hathaway (the holding company run by Warren Buffett), Elevance Health, Inc. (NYSE:ELV) (a leading US health insurer), Danone (global food and nutrition), Heidelberg Materials (global cement and aggregates) and Alphabet (global Internet search). Our top seven are certainly not as dominant or as profitable collectively as their Magnificent Seven counterparts. But they are durable, attractive businesses with good growth prospects. Elevance benefits from continued growth in health care expenditures as our society ages. And so on.”
12. Exxon Mobil Corporation (NYSE:XOM)
5-yr Monthly Beta: 0.96
Number of Hedge Fund Holders: 85
Exxon Mobil Corporation (NYSE:XOM) is a Texas-based company that explores and produces crude oil and natural gas. The company carries out its operations through Upstream, Energy Products, Chemical Products, and Specialty Products segments. The stock’s 5-year monthly beta is 0.96.
On April 12, Exxon Mobil Corporation (NYSE:XOM) announced that it came to a final investment decision for its $12.7 billion Whiptail project. It is the company’s sixth Guyana project and, by the end of 2027, will add nearly 250,000 barrels of daily capacity. Additionally, the project will have up to 10 drill centers with 48 production and injection wells.
On April 11, UBS analyst Josh Silverstein raised the price target on Exxon Mobil Corporation (NYSE:XOM) to $150 from $133 and kept a Buy rating on the shares. The firm mentioned that it believes that the company has a good position to build on its strength in crude oil and downstream margins.
In the fourth quarter of 2023, Exxon Mobil Corporation (NYSE:XOM) was part of 85 hedge funds’ portfolios with a total stake value of $4.47 billion. First Eagle Investment Management is the most prominent shareholder in the company and has a position worth nearly $1.32 billion as of Q4, 2023.
11. Walmart Inc. (NYSE:WMT)
5-yr Monthly Beta: 0.49
Number of Hedge Fund Holders: 85
Walmart Inc. (NYSE:WMT) is engaged in retail, wholesale, eCommerce, and other units. The company has 10,500 stores in over 19 countries. Walmart Inc.’s (NYSE:WMT) 5-year monthly beta is 0.49.
28 Wall Street analysts have covered Walmart Inc. (NYSE:WMT), and 25 keep a Buy-equivalent rating on the stock. As of April 17, the average price target of $65.73 represents an upside of 10.00% from present levels.
According to Insider Monkey’s database that tracks 933 elite hedge funds, in the fourth quarter of 2023, 85 hedge funds had stakes in Walmart Inc. (NYSE:WMT), with total positions worth $6.243 billion. Fisher Asset Management is the largest shareholder in the company with a stake worth $1.5 billion, as of December 31, 2023. Walmart Inc. (NYSE:WMT) is one of the best low volatility stocks to buy according to hedge funds.
10. Danaher Corporation (NYSE:DHR)
5-yr Monthly Beta: 0.86
Number of Hedge Fund Holders: 90
Danaher Corporation (NYSE:DHR) is a designer, manufacturer, and provider of medical, industrial, and commercial services, among others. The company offers its services through various segments, including Biotechnology, Life Sciences, and Diagnostics.
In the fourth quarter of 2023, 90 hedge funds held positions in Danaher Corporation (NYSE:DHR), with positions worth $6.427 billion. As of December 31, 2023, Fisher Asset Management is the biggest shareholder in the company and has a position worth $976.233 million.
On April 16, HSBC upgraded Danaher Corporation (NYSE:DHR) to Buy from Hold and increased the price target to $280 from $250. Additionally, the stock has a 5-year monthly beta of 0.86.
Headwaters Capital Management stated the following regarding Danaher Corporation (NYSE:DHR) in its fourth quarter 2023 investor letter:
“Danaher Corporation’s (NYSE:DHR) acquisition offer for ABCM was approved by shareholders on 11/6/23. Shareholders approved the deal based on trough fundamentals (potential China weakness) and trough valuation (the broader market bottomed on 10/27). DHR took advantage of broader market fears and mis-aligned management incentives to acquire Abcam at a cheap price. While disappointing, ABCM was still a very successful investment for Headwaters as it outperformed the market by +27% during our ownership. The cash received from the acquisition was immediately re-deployed into the newest addition to the portfolio, IPAR (discussed below).”
9. ServiceNow, Inc. (NYSE:NOW)
5-yr Monthly Beta: 0.96
Number of Hedge Fund Holders: 91
ServiceNow, Inc. (NYSE:NOW) is a California-based company that offers end-to-end intelligent workflow automation platform solutions. According to the company’s website, 85% of Fortune 500 companies are its clients and in the fourth quarter of 2023, the renewal rate was 99%. The stock has a 5-year monthly beta of 0.96 and is among the best low volatility stocks to buy according to hedge funds.
On March 18, ServiceNow, Inc. (NYSE:NOW) announced that it is set to acquire 4Industry, a digital manufacturing platform. In the update, the company also mentioned that it successfully completed the acquisition of EY Smart Daily Management. The two acquisitions strengthen the company’s operational technology management offerings.
In the fourth quarter of 2023, 91 hedge funds held positions in ServiceNow, Inc. (NYSE:NOW) worth $5.703 billion. As of Q4 of 2023, Fisher Asset Management is the most significant shareholder in the company and has a position worth $1.023 billion.
Baron Funds stated the following regarding ServiceNow, Inc. (NYSE:NOW) in its fourth quarter 2023 investor letter:
“ServiceNow, Inc. (NYSE:NOW) offers cloud-based solutions that improve workflow efficiency through automation and digitalization. The stock rose 26.4% in the fourth quarter, finishing the year up 82.0%. Stock appreciation was supported by strong quarterly results above expectations with 24.5% year-over-year subscription revenue growth in constant currency and 30% non-GAAP operating margins despite ongoing macro complexities. In addition, the stock benefited from growing investor expectations that the company would benefit from the integration of GenAI technology into its products, and a rise in software stocks more broadly. Management noted that key business drivers included strong traction with government customers, improving momentum with new customers, and budget consolidation into platforms like ServiceNow. In addition, the company launched its GenAI-supported product line, sold under a new higher-priced Pro Plus sku, at the end of the quarter and has already signed on multiple customers with hundreds more in the pipeline. The new product line should generate material efficiencies for customers as it improves their ability to automate and digitize, and hence we expect broader adoption of the Pro Plus sku, creating an additional growth engine for ServiceNow, supporting the company’s long duration of growth.”
8. Merck & Co., Inc. (NYSE:MRK)
5-yr Monthly Beta: 0.40
Number of Hedge Fund Holders: 98
Merck & Co., Inc. (NYSE:MRK) operates through Pharmaceutical and Animal Health segments. The company offers veterinary pharmaceuticals, human health pharmaceutical products, and more. The stock’s 5-year monthly beta is 0.40.
Merck & Co., Inc. (NYSE:MRK) was part of 98 hedge funds’ portfolios and their stake amounted to $7.167 billion in Q4 of 2023. This is compared to 85 funds in the prior quarter with a total stake of $5.06 billion. With 13.551 million shares worth $1.477 billion, Fisher Asset Management is the most prominent shareholder in the company as of Q4 2023.
On April 4, Merck & Co., Inc. (NYSE:MRK) announced that it began the Phase 3 clinical trial of MK-1084, which is being developed with Taiho Pharmaceutical Co. Ltd and Astex Pharmaceuticals (UK). MK-1084 aims to be a treatment for patients with metastatic non-small cell lung cancer (NSCLC) whose tumors harbor KRAS G12C mutations and express PD-L1.
Carillon Tower Advisers made the following comment about Merck & Co., Inc. (NYSE:MRK) in its Q3 2023 investor letter:
“Merck & Co., Inc. (NYSE:MRK) underperformed in the third quarter, based on what we view as largely macroeconomic-related factors. The company continues to execute well, both clinically and fundamentally, but much of the biopharmaceutical industry has been weak as investors are gravitating to other, more cyclical sectors.”
7. Eli Lilly and Company (NYSE:LLY)
5-yr Monthly Beta: 0.37
Number of Hedge Fund Holders: 102
Eli Lilly and Company (NYSE:LLY) is engaged in the discovery, development, and marketing of human pharmaceuticals. The stock has a 5-year monthly beta of 0.37 and takes the seventh spot on our list of the best low-volatility stocks to buy according to hedge funds. On April 2, Citi analyst Andrew Baum raised the price target on Eli Lilly and Company (NYSE:LLY) to $895 from $675 and maintained a Buy rating on the shares.
In the fourth quarter of 2023, 102 hedge funds had investments in Eli Lilly and Company (NYSE:LLY), with total positions worth $11.178 billion. As of Q4 of 2023, Ken Fisher’s Fisher Asset Management is the most dominant shareholder in the company and has a position worth $2.6 billion.
Aristotle Atlantic Partners, LLC stated the following regarding Eli Lilly and Company (NYSE:LLY) in its fourth quarter 2023 investor letter:
“Eli Lilly and Company (NYSE:LLY) is a leading pharmaceutical company that develops diabetes, oncology, immunology and neuroscience medicines. The company generates over half of its revenue in the U.S. from its top-selling drugs Trulicity, Verzenio and Taltz. The company operates in a single business segment, Human pharmaceutical products.
Eli Lilly has a deep pipeline in treatment areas focused on metabolic disorders, oncology, immunology and central nervous system disorders. Currently, there are two phase three assets, Orforglipron, an oral GLP-1 and retatrutide, a triple incretin agonist, which have the potential to expand upon the potential success of Mounjaro. We believe that Mounjaro has the potential to commercialize beyond type 2 diabetes and obesity, potentially in the areas mentioned above of heart disease, sleep apnea, fatty liver disease and chronic kidney disease. We belief the premium valuation is supported by this outsized growth profile.”
6. Thermo Fisher Scientific Inc. (NYSE:TMO)
5-yr Monthly Beta: 0.80
Number of Hedge Fund Holders: 111
Thermo Fisher Scientific Inc. (NYSE:TMO) offers life sciences solutions, analytical instruments, laboratory products, and more. The company has multiple brands in its portfolio, including Thermo Scientific, Applied Biosystems, and Fisher Scientific, among others. The 5-year monthly beta of the stock is 0.80.
Thermo Fisher Scientific Inc. (NYSE:TMO) was part of 111 hedge funds’ portfolios in the fourth quarter of 2023 with a total stake value of $10.3 billion. This is compared to 109 funds with positions worth $8.94 billion in the third quarter. Chris Hohn’s TCI Fund Management is the top shareholder in the company and has a position worth $1.67 billion as of Q4 of 2023.
Microsoft Corporation (NASDAQ:MSFT), Visa Inc. (NYSE:V), and Berkshire Hathaway Inc. (NYSE:BRK-B) are some of the best low-volatility stocks to buy according to hedge funds, in addition to Thermo Fisher Scientific Inc. (NYSE:TMO).
Generation Investment Management stated the following regarding Thermo Fisher Scientific Inc. (NYSE:TMO) in its fourth quarter 2023 investor letter:
“In each quarterly letter we share examples from the portfolio that bring our investment process to life. This quarter we focus on Thermo Fisher Scientific Inc. (NYSE:TMO), a provider of healthcare products.
In recent years advances have accelerated. The large-scale use of mRNA vaccines during the COVID pandemic – the first major application of these vaccines – is just one example. Similar advances in drug development have allowed medicines to be developed for hard-to-treat diseases like Alzheimer’s, as well as to treat and perhaps cure diseases that previously eluded treatment.
To push innovation forward, researchers need tools to ask the right questions, run experiments to test hypotheses and in turn draw insights. These tools encompass high-specification instruments, high-purity reagents, powerful software and a variety of specialised services. An ecosystem has developed of companies that specialise in providing these tools. We often think of them as providing the ‘picks-and-shovels’ to researchers who are mining for the gold once obscured by nature…” (Click here to read the full text)
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Disclosure. None. 13 Best Low Volatility Stocks to Buy According to Hedge Funds is originally published on Insider Monkey.
