3 low-volatility leaders for a coming correction

These picks can weather any potential pullback.

By InvestorPlace May 22, 2013 11:24AM
iplogoArrow Down Umbrella (© Photographers Choice RF/SuperStock)By Johnson Research Group

Despite growing pessimism, the market continues to take indices to new highs. The constant drip higher has a growing number of sidelined investors looking for a way to get their cash to work without feeling they're setting themselves up to buy on the highs and sell on the lows.


One strategy that allows these investors to feel a little more comfortable with putting money in the game at these levels is to target lower volatility stocks within leading indices. The idea is simple: Lower volatility performers may be less likely to see deeper pullbacks when a correction does occur.


With this in mind, the table below identifies the ten lowest volatility stocks in the Nasdaq-100. This index represents the largest domestic and international non-financial securities listed on the Nasdaq Composite ($COMPX) based on market capitalization.


The table below displays data on the ten lower volatility stocks within the Nasdaq-100, using their current 100-day historical volatility as a gauge.


lowvolatitly


Right out of the gate there are three stocks that standout as strong bullish candidates for this approach. Let's take a closer look at them.


Fiserv (FISV)


FISV
Click to Enlarge


Think of this company as one of the backbones for electronic payment systems. The company has been easily outpacing the market over the last three months, but has softened-up a bit more recently, indicating that a buying opportunity may be presenting itself before its next surge.


Fundamentally, the company has performed well on the earnings front as electronic payments continue to expand -- no surprise. What is a surprise is that almost 70% of the analysts ranking the stock have it assessed as a "hold." Watch this stock move higher as these analysts get off of the fence with some upgrades.


Paychex (PAYX)


PAYX
Click to Enlarge


Another low volatility leader of interest is Paychex. The payroll processor continues to see some brighter days ahead as the employment situation improves. This stock is up almost 16% over the last three months compared to the S&P 500 ($INX) performance of a stunning 11%, but the analysts still aren't buying as 76% of them have it ranked a "hold."


Another stunner is the fact that the shares are extremely heavily shorted to the tune of nine times the shares' average daily volume. We love the underloved outperformers, and Paychex is a strong contender in that category. Heck, its low volatility feature is just a bonus.


PowerShares S&P 500 Low Volatility Portfolio (SPLV)


SPLV
Click to Enlarge


Don't like any of the stocks in the table? Well, try a low volatility ETF. Low volatility ETFs such as the PowerShares S&P 500 Low Volatility Portfolio and the iShares MSCI USA Minimum Volatility Index Fund (USMV) offer an easy way to diversify a portfolio into lower-volatility companies.


While we believe that the stocks identified will have more upside potential as a result of their specific situations, the slow-and-low volatility trend of these ETFs is attractive for almost anyone's portfolio.


As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.


More from InvestorPlace

34Comments
May 22, 2013 11:32AM
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The growing pessimism centers around the knowledge that in spite of the fact that the Markets have soared, it's based on corrupt Global Feds Printing Money. So sure, it might continue for some time, that's not the real issue. What is the issue, how bad the fallout will be when all the funny money ends.
May 22, 2013 12:49PM
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The big losers if there's a drop are the 401(k) holders who don't have the options of purchasing one stock or another.  We're stuck in these stupid insurance products that mimic mutual funds.  You can't just get your money out in five minutes if you are in risky investments.  Even those of us who are fortunate enough to be able to make changes in our investment portfolios on-line cannot move fast enough if the market is in a screaming dive.  This market movement is not from growth, it is based upon false information from the White House and the Federal Reserve such as 'there is no inflation' and 'the economy is improving.'  Anybody that actually purchases food for their home knows fulls well there is inflation and it is going full tilt.  If you want to protect your money from another market correction, think forward to what the two days of this correction will look like:  hearing this on the news or reading it on the internet, calling your broker repeatedly and not being able to get through or not having your calls returned, watching all your gains over the last two years vanish.  If this scenario sounds like what has already happened to you, do something about it now.  Take half of your money and move it into something safe.  It may not earn the gains of the other half if there is no correction, but it will hang on to what it has earned already and you won't regret that if there is a correction.  It is like taking some of your chips off the table versus letting it all ride.
May 22, 2013 12:24PM
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Dear Dave, what's your problem with this article?  The author is trying to help you. The subject is what to do to help survive the big drop. Didn't you see that the writer is anticipating a drop?  It suggests owning stuff that will not drop as fast as some other stuff. Were the suggestions helpful to you?  I thought they were useful.
May 22, 2013 12:21PM
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We are in uncharted territory.  Anyone who thinks they know what will happen when the QE ends is kidding themselves.  I believe patience is in order.
May 22, 2013 12:28PM
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Jroseeng
NO NO No it's totally the time for unfounded speculation.
May 22, 2013 1:51PM
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If I could get near the super hot printing presses I would throw my hot dogs and hamburgers on and have a couple smores for dessert.Charcoal not required.

May 22, 2013 12:48PM
May 22, 2013 3:01PM
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The more I read, the more I'm disgusted with the Fed. They're turning our currency into Monopoly money. God save us from Ben "Dover" Bernanke! 
May 22, 2013 3:24PM
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Ben needs to be fired and we can get ready for the country going bankrupt.

Thanks Ben!!!

May 22, 2013 3:14PM
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"The growing pessimism centers around the knowledge that in spite of the fact that the Markets have soared, it's based on corrupt Global Feds Printing Money."

 

It would be very difficult to explain all of this any other way BUT- corrupt. I will predict that Goldman Sachs, present employees and alumni will find themselves answering to a Global Tribunal very soon. For the comfort of all... I also predict that every politician, bureaucrat, executive and both the False & Legitimate Elite will be excluded from that panel. Can you imagine them starting off explaining things to  Enron and Worldcom victims, then progressing through the estimated 95% of remaining victims? The prceedings could take centuries. Hope their successors and assigns are geared up for lifetimes ahead explaining what their ancestors did. Shred that you greedy arrogant bastards.

May 22, 2013 2:12PM
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The market usually drops in May/June, the short sellers are very active, and all it might take to see a major market correction is for some banker in Greece to catch the flu !  I have no interest in buying a stock or ETF that will not drop as fast as the rest and much prefer to take profits, cash out, and just patiently wait for a big drop when I can buy again !  Yes, I might miss a few dollars in new profit, but I'm sure to miss a few thousand dollars in losses in a big drop.  I learned a very painful lesson on loosing money in the market last year and I will never again trust highs to go higher.
May 22, 2013 3:22PM
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A fack market hand made by the Fed and free money for the banks. How long before the sh-- hits the fan???
May 22, 2013 1:32PM
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The coming correction?  What correction?  Didn't you listen to Bernanke - QE will go on!  As long as Bernanke's $85 billion dollar check shows up on time (it will) and is good (and we know it is since he can just conjure, er print, er "digitize" cash out of thin air), there will be no correction. 

Ride the lightning.
May 22, 2013 3:15PM
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Past performance is no guarantee of future earnings bla bla bla
May 22, 2013 1:53PM
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They really should re-name it "The Stock Sure Thing" drop the "Market" part for now.

 

Enjoy it baby boom retirees!!!

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