Market Volatility Creates Opportunity in These 3 Value Stocks

Key Points

• As volatility returns to the market, it becomes clear where traders are looking for safety measures, driving investors to these safe stocks.
• Three names stand out for their low volatility setups, double-digit upside, and dividend income potential.
• Wall Street analysts and institutional buyers agree with this list, as evidenced by price targets and buying activity.

As a new volatility regime is building up for the broader stock market, investors might have noticed a particular behavior during the sharp action days brought about by the DeepSeek debacle with the United States technology sector. This behavior, what traders choose to buy or sell during periods of high tension, can give investors a massive insight into what’s coming next.

With this in mind, it will become clear that high valuations in so-called growth stocks have seen their premiums fade as the broader market is now looking to gain exposure to other areas in the market, ones that show a bit more upside without the potential declines and downside risk. Such a preference led traders and capital to value stocks, as can be seen by the relative performance between the iShares S&P 500 Value ETF NYSEARCA: IVE and the iShares S&P 500 Growth ETF NYSEARCA: IVW last week.

However, not all value stocks are made equal; some are looking to deliver a much better risk-to-reward ratio for those investors willing to give them a second look. In this list, names like Realty Income Co. NYSE: O to represent the real estate sector, Ulta Beauty Inc. NASDAQ: ULTA, and PepsiCo Inc. NASDAQ: PEP to bring some of the best deals in the consumer staples sector of the market.

There’s Safety and Upside in Realty Income Stock

Real estate investment trusts (REITs) aren’t known for being too volatile, so even if the broader S&P 500 declines, these stocks tend to stay close to their 52-week highs due to their safety. However, even Realty Income is now trading at 82% of its 52-week high now, making it an unmissable potential buying opportunity.

With this in mind, it would make sense for investors to see Wall Street analysts' consensus price target of $62.04 a share on this stock, which would call for a net upside of as much as 13.8% from today’s prices. More than that, this stock has one special feature that makes it even more attractive.

Through a monthly payout of $3.17 per share, management is confident in Realty Income’s ability to keep generating strong and growing cash flow to afford dividend payouts. At today’s price, this payout would translate into a high 5.8% dividend yield to beat all the inflation fears in the United States spurred by tariff fears.

With the recent market volatility, institutional buyers from Sumitomo Mitusi Trust Group decided to boost their holdings in Realty Income stock by 6% as of late January 2025. This new allocation shows confidence in the safety of this stock and brought their net position to a high of $245.1 million today.

Ulta Stock’s Discount: A Wealth Compounder

Now that Ulta shares have traded down to 72% of their 52-week highs, there is an undeniable opportunity for investors to tap into the wealth-compounding effects this company has to offer them. Ulta's business model and financial makeup are the reason for its upside and attractiveness.

While most would categorize Ulta as a consumer discretionary stock, it is clear that skincare and makeup products are far from discretionary but rather staple items. What this means is that no matter if the economy is booming or busting, Ulta’s customer base will likely still have room in their budgets for these products.

This safety, combined with a return on invested capital (ROIC) rate of over 22%, would make Ulta stock a wealth compounder, especially at these low prices.

This might be why Morgan Stanley analysts decided to boost Ulta to an overweight rating, this time placing a 20.8% upside on it through their $ 500-a-share valuations.

Pepsi Stock’s Discount Won’t Last Long

This low-beta stock, trading at 80% of its 52-week high, offers a similar profile to Realty Income stock, as it should never have gotten to this low in the first place. This consumer staple stock, with massive brand recognition and international penetration, has all the right components to make a comeback to new highs.

That's why today’s discounts make it easy for Wall Street analysts, particularly those from Deutsche Bank, to boost the stock’s valuations to $178 a share as of January 2025.

This new valuation would not only mean Pepsi stock gets closer to its 52-week high but also a net 18% upside from where it trades today.

There’s also the $5.42 payout component, making Pepsi stock all the more attractive for investors today.

This dividend payout would translate to a 3.6% yield, beating inflation and cushioning any further volatility that might come in the market, giving investors more time to wait for Pepsi stock’s path to higher prices.