Beat the Volatility: Top 3 Low-Beta Stocks to Watch

Key Points

• As the market gears up for potential volatility in the coming months due to the presidential election, low-beta names become more attractive.
• With fundamental tailwinds pushing their business models, a select few stocks stand out as ones to attract more capital.
• Wall Street analysts agree with double-digit upside; even bearish traders have been heading for the exits.

Now that the most important event of the year, the Federal Reserve (the Fed) interest rate cuts, is over, investors wonder where their capital can be safely treated in the face of potential volatility in the coming months. To satisfy this need to keep a stable portfolio, a decent weight in low beta stocks, characterized by smaller average daily moves compared to the S&P 500 index, is called for.

Some investors only focus on a stock's beta without considering some of the fundamentals and sentiment that the market and Wall Street have toward them. Ideally, companies in the consumer staples sector can combine the low volatility and stability that's now needed. Still, there is also an additional factor to consider: a subscription-based model to make it easier for analysts to project cash flows and valuations in the middle of a rocky market.

This stock list includes T-Mobile US Inc. NASDAQ: TMUS, as phone bills are subscriptions that only a few users are willing to fall behind on. Moving over to a nearly given profit maker, investors can look into Waste Management Inc. NYSE: WM as a business model that will continue growing as long as people live in the United States. Finally, another subscription business is found in American Water Works Co. NYSE: AWK, a utility stock.

T-Mobile Stock Is a Smart Investment for Any Market Cycle

It probably doesn’t matter whether the economy is booming or busting; nearly all citizens will be able to make room in their budgets to pay for their monthly phone bills, making T-Mobile a stock to have during rocky and quiet markets.

The stability of its business model enables the stock to carry a low beta of 0.5 today, which means that T-Mobile stock moves 50% less than the S&P 500 index. More than that, because of the ability to assess the future cash flows for the year, management can pay out a dividend of $3.5 a share for an annual yield of 1.7% today.

Stable stocks don’t have to mean boring stocks; analysts at Benchmark decided to reiterate their “Buy” rating for T-Mobile stock as recently as late September 2024. This time, these analysts landed on a $250-a-share valuation for the company, directly calling for up to 20% upside from where the stock trades today.

Knowing that low beta stocks may become investors' preference in the coming months, even bearish traders have decided to step back from T-Mobile stock, as seen in the company’s falling short interest of 14.8% in the past month alone.

Over the quarter, short interest has also declined from a high of $4.5 billion to only $3 billion today, showing investors more signs of bearish capitulation, leaving more room for bullish investors to come in and take their place.

Waste Management Stock Could Capitalizing on the New Business Cycle

Now that the Fed has cut interest rates, and other nations like China have followed suit with a similar 50 basis point cut, the rate of business activity might start to spike in the coming months, leading to more waste being generated from both the consumer and business sector.

This is where Waste Management stock comes into play, as it is at the center of global waste trade between nations that buy scraps made from the United States to recycle or utilize for their own purposes. Because the business model is centered on a fact of everyday life, investors can probably assume how it can reflect into a low-beta stock.

With a beta of only 0.75, Waste Management stock has started to attract investors who want to keep their risk under control in today’s market. This trend will cause investors to notice a few outlier analyst price targets coming from Wall Street.

Those at Truist Financial now see Waste Management stock valued at $235 a share, which calls for a 12.6% upside from its current price. These factors have attracted institutional capital, as seen in the $5 billion that has entered Waste Management stock over the past 12 months.

Why Utility Stocks Like American Water Works Are the Go-To Safe Haven

After the market has digested the potential effects of recent interest rate cuts, another major event is coming up: the presidential election. Now, investors have two choices: either stay completely out of the market until the dust settles or devise a strategy that mitigates the potential risks.

Utility stocks might be the best choice on this list to mitigate volatility, which is why American Water Works stock is a good buy today. With a beta below 0.70, the price action and volatility aspects are now taken care of for sentiment measurement.

Those at the Royal Bank of Canada have landed on an “Outperform” rating for American Water Works stock and now see a price target of up to $164 a share to call for a net upside of as much as 13% from where the stock trades today.

Then there’s the rising institutional buy interest, such as the recent 6.9% boost in holdings coming from the Czech National Bank, bringing their net position to $5.8 million today and showing investors more willingness from big players to start positioning themselves into this stock before the broader adoption comes in.