We recently published a list of 10 Best Low Beta Tech Stocks to Buy According to Analysts. In this article, we are going to take a look at where Commvault Systems, Inc. (NASDAQ:CVLT) stands against other best low beta tech stocks to buy according to analysts.
The equity markets continue to experience volatility due to geopolitical tensions, trade uncertainties, earnings fluctuations, inflationary pressures, and tightening monetary policy. In such an environment, low-beta stocks offer investors stability, steady returns, and protection during market downturns, making them a valuable component of a well-balanced investment portfolio. For those seeking to mitigate risk while still achieving consistent growth, focusing on low-beta stocks can be a strategic approach.
Beta is a key metric used to measure a stock’s sensitivity to overall market movements and its exposure to market risk. It is calculated by comparing the security’s returns to a benchmark index while adjusting for market volatility. A beta of 1.0 indicates that the stock moves in tandem with the market, implying an equal level of risk. A beta below 1.0 suggests lower volatility and reduced risk, making such stocks more defensive. Conversely, a beta above 1.0 signals greater price fluctuations and higher risk. By understanding beta, investors can better anticipate how a stock may respond to market changes and incorporate it into portfolio risk management.
How to Use Beta to Enhance Investment Strategy
In a report on equity betas, John Hancock Investment Management (JHIM) highlighted that beta is not inherently good or bad; its effectiveness depends on an investor’s objectives. A beta of 1.0 is suitable for those investors aiming to match overall market performance, while a beta below 1.0 is ideal for capital preservation and stability. Investors focused on growth, however, may prefer stocks with a beta above 1.0, as these tend to experience higher volatility but also offer greater return potential.
High-beta stocks (beta >1.0) are typically found in growth sectors such as technology, energy, and small-cap stocks, where price swings are more pronounced. Low-beta stocks (beta <1.0), on the other hand, are often value stocks within defensive industries such as utilities and consumer staples, providing stability even in turbulent market conditions.
Impact of AI Investment on Beta and Market Cyclicality
A mid-2024 study on equity beta by the FTSE Russell Global Investment Research team examined significant shifts across various industries, particularly in semiconductors. The increasing investment in AI technologies has driven heightened investor activity and increased risk exposure in the sector. Historically, semiconductor stocks had a beta ranging between 1.0 and 1.2, reflecting their cyclical nature. However, since late 2021, beta in this sector has surged, reaching 1.7 by July 2024, due to AI’s expanding influence in the technology space. The research highlights how structural changes, such as the AI boom, can reshape market dynamics and impact investment risk assessments.
Beyond semiconductors, the study also underscores broader shifts in industry cyclicality over the past five years. Some of these changes stem from long-term economic transformations, like the rise of AI and the shift to green energy, while others result from short-term economic shocks. Certain sectors have experienced rapid changes, altering their classification as either cyclical or defensive investments. The FTSE Russell team advises investors to remain vigilant about these evolving market trends when assessing investment opportunities and managing portfolio risks. Understanding how these shifts affect market behaviour is crucial for successfully positioning investments in different economic cycles.
Our Methodology
To identify the 10 best low-beta tech stocks recommended by analysts, we first screened all U.S.-listed technology companies with a market capitalization exceeding $2.0 billion. From this selection, we filtered stocks with a beta below 1.0, indicating lower volatility (we used 5-year average beta). Beyond beta, we applied additional criteria, including a return on equity (ROE) of at least 15% and a long-term debt-to-equity ratio below 1.0, ensuring that we chose companies with financial stability. We then narrowed the list further to companies with a potential upside of 10% or more. Ultimately, we sorted the top 10 stocks based on their beta, positioning the lowest beta stock at the top. Additionally, we also included data on hedge fund holdings in these companies as of Q4 2024 to provide further insight into investor interest.
Note: All pricing data is as of market close on March 3.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A close-up of a computer monitor, displaying complex information management software.
Commvault Systems, Inc. (NASDAQ:CVLT)
Beta: 0.62
Potential Upside: 11%
Number of Hedge Fund Holders: 35
Commvault Systems, Inc. (NASDAQ:CVLT) is a data protection and information management software company. The company provides solutions for data backup and recovery, cloud and infrastructure management, retention, and compliance. Its software platform helps organizations protect, access, and use all of their data, anywhere and anytime.
A William Blair analyst upgraded Commvault Systems, Inc. (NASDAQ:CVLT) to Outperform from Market Perform, citing strong growth potential in the evolving backup and recovery market which is now becoming a critical cybersecurity concern. The analyst sees the company’s operating leverage as a key driver for future growth, especially as the impact of recent acquisitions stabilizes. The company is well-positioned for revenue and earnings growth with economies of scale and expanded cross-selling opportunities. According to the analyst, better revenue and earnings will be the primary catalyst for Commvault Systems, Inc. (NASDAQ:CVLT)’s valuation rather than multiple expansion.
Overall, CVLT ranks 2nd on our list of best low beta tech stocks to buy according to analysts. While we acknowledge the potential of CVLT as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CVLT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.