10 stocks to buy instead of Apple

Investors would do better over time investing in boring, low-volatility stocks that are hardly ever in the news.

By MSN Money Partner Jan 29, 2014 3:13PM

Image: Woman reading newspaper in livingroom © Tetra images/Getty ImagesBy Mark Hulbert, MarketWatch


The stunning plunge of Apple's (AAPL) stock earlier this week just goes to show the high price investors pay for owning a popular and trendy stock.


And make no mistake about it: Apple's stock may no longer be as hot as it was when it was trading above $700, but the stock remains one of the most popular stocks for investors to own. Among the model portfolios recommended by the more than 200 advisers tracked by the Hulbert Financial Digest, for example, Apple is far and away the most widely held.


Investors would do better over time investing in boring, low volatility stocks that are hardly ever in the news. And if they are really gutsy, investors would do even better buying stocks at the opposite end of the popularity spectrum -- those that are actively disliked, shunned, or even downright hated.


Speaking of gutsy, consider a spectacular bet that Robert Arnott, chairman and founder of Research Affiliates, made in the summer of 2010. To set the context of his bet, Apple that summer surpassed Microsoft (MSFT) to take the No. 2 spot in the market cap rankings -- and was fast closing in on ExxonMobil (XOM) to become the largest publicly traded company in the world. (Microsoft owns and publishes Top Stocks, an MSN Money site.)


BP (BP), in contrast, was on life support as it struggled to cope with the disastrous and tragic oil spill in the Gulf of Mexico. Its stock price had plunged to its lowest in over a decade. Survival was by no means assured.


Like the good contrarian he is, however, Arnott was willing to bet that BP would outperform Apple over the longer term. With the big drop in Apple's stock earlier this week, Arnott is now ahead on his bet: Since BP's summer 2010 low, its stock is up 99.3 percent -- versus 94.5 percent for Apple.


This isn't the only time Arnott has made a spectacular contrarian bet against Apple. Another came a year after his BP-over-Apple bet: In August 2011 he predicted that Bank of America (BAC) would outperform Apple over the long term.


At that time, Bank of America's reputation was almost as awful as BP's had been in the wake of the Gulf oil spill. The bank represented all that was dysfunctional about bank and mortgage company behavior that led to the credit crunch and liquidity crisis of 2008. As was the case a year previously with BP, the bank's survival was not assured.


Yet on this Bank of America-over-Apple bet, Arnott is even further in the black than he is with his BP bet: Since my August 2011 column reporting it, Bank of America stock has produced a real return of 146.1 percent, versus 43.5 percent for Apple.


To be sure, contrarian bets like Arnott's don't always work out this nicely. But, more often than not, they do.


Fortunately, you don't have to be as bold as Arnott to bet against companies that are as popular and "cool" as Apple has been in recent years. You can simply load up your portfolio with boring stocks that are hardly ever in the news one way or the other.


One way that researchers try to capture this boredom is to identify stocks that have exhibited the least historical volatility. That's because, according to a number of behavioral studies, more volatility begets greater attention, and greater attention begets more volatility.


Consider a portfolio that is always invested in the 10 percent of U.S. stocks that have the lowest volatilities over the trailing 24 months. According to Nardin Baker, who manages global equity at Guggenheim Partners, this portfolio from 1990 through 2012 did 19 percent per year better than the 10 percent of stocks with the greatest historical volatilities.


If you want to identify the stocks with the least volatility, there's a website you can turn to. It was the brainchild of the late Robert Haugen, who devoted much of his academic career to showing that you could beat the market by investing in boring, low-volatility stocks.


The following 10 stocks are those that the website identifies as having the lowest two-year trailing volatilities and which are also recommended by at least one of the Hulbert Financial Digest-monitored advisers who have beaten a buy-and-hold in the stock market over the last 15 years:


American Financial Group (AFG)


American Water Works (AWK)


Automatic Data Processing (ADP)


BCE Inc. (BCE)


Chubb (CB)


Cintas (CTAS)


Jack Henry & Associates (JKHY)


Loews (L)


Marsh & McLennan Companies (MMC)


Praxair (PX)


More from MarketWatch

Jan 29, 2014 3:33PM
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