Market Overview

Ride Out the Volatility in These 5 Stocks


So, in case you haven't noticed, global financial markets are going all bi-polar again, and stocks were absolutely crushed in May. Total losses in the S&P 500 were more than 6% on the month, and the beginning of June is not starting off any better. After an absolutely torrid beginning to the year, all gains in the Dow have been wiped out, while the S&P is up less than 1%. The Nasdaq remains a (relative) bright spot and is still up 5% in 2012.

Sharp pullbacks have been terrific buying opportunities since the March 2009 lows, but it definitely requires some guts to load up on risk at current levels. In my opinion, sooner or later, one of these dips is going to turn into an all-out crash. Although the financial news channels may try to put the most positive spin possible on recent dismal economic data, it is hard to look at the numbers and not come to the conclusion that the U.S. economy may be hitting stall speed while Europe stares into the abyss. How many more times will the market be able to pick itself up off the floor and regain its uptrend?

In any event, the first couple of trading days in June have been a continuation of the May swoon, and more volatility could certainly be ahead. With this in mind, Benzinga decided it might be a good idea to find some defensive plays where traders can hide out from the sell-off. To this end, I ran a simple scan looking for large-cap dividend stocks that actually didn't fall in May.

This suggests that hedge funds and other investors were buying these names while selling their riskier holdings during the month. If similar trends hold, these stocks could continue to outperform the market amid a volatile atmosphere. The 5 stocks that we zeroed in on all have market caps of over $10 billion, dividend yields of over 4%, and, with the exception of one, went up in May.

Not surprisingly, the names that met these metrics belong to reliable defensive sectors, which are normally not as effected by market gyrations as more cyclical industries. Below, Benzinga highlights 5 names that investors may want to consider as "hide-out" spots from the current market volatility.

Duke Energy (NYSE: DUK) - This utility player is bucking the market trend and shows a very sturdy, low-risk profile. Judging by price action, it is clear that hedge fund and other nimble market players were rotating into this stock as market conditions deteriorated. In the month of May, DUK added a little better than 2.50% compared to the carnage in the major market averages. Shares are currently trading at 52-week high levels and DUK could continue to see more inflows as fear levels pick up. The company has a market-cap of $30 billion, a dividend yield of 4.45%, and a beta of just 0.34. These are all metrics that make the stock attractive to risk-averse investors.

Dominion Resources (NYSE: D) - This is also a utility company with a similar profile to Duke Energy. The company has a market-cap of nearly $30 billion, a dividend yield of 4.09% and a low-beta of 0.46. For the month of May, Dominon finished very close to the flat-line compared to a loss of more than 6% in the S&P. Year-to-date, the stock is down 2.86%. The chart is trending higher, and if money continues to flow into the utilities sector, Dominion should be a reasonably safe place to hide out.

Reynolds American (NYSE: RAI) - This cigarette manufacturer is a tremendous stock which continues to outperform by a very large margin on longer-term time horizons. Risk-averse investors should own this name and hold on to it. Year-to-date, shares are down around 1.67%, but RAI rose 2.47% in March as hedge funds bought the name and sold their riskier stocks. The company has a market cap of roughly $23 billion, a dividend yield of 5.79%, and a beta of 0.58. Cigarette names have been in the sweet spot in recent years, combining high yields, defensive profiles and consistent growth. In a continued market sell-off, investors may do just fine in RAI as risk-averse money continues to flow into the stock.

AT&T (NYSE: T) - This is a stock that can be hard to appreciate until the market gets clobbered and T actually goes up. With the yield on the 10-Year Note hovering at around 1.50%, investors are looking at AT&T's dividend yield and just buying the name. Shares are already up almost 13% in 2012, and T added almost 4% during the May downdraft. The company has a $200 billion market-cap and a 5.15% dividend yield to go with a very defensive operating profile. All of these qualities make AT&T one of the safest stocks in the market. Traders looking to profit off a continued decline in equity markets could buy AT&T while shorting riskier names.

Verizon (NYSE: VZ) - AT&T's main competitor is also a "go-to" stock during market sell-offs. The company has a huge market cap ($117 billion), a dividend yield of 4.84% and a beta below 0.50. Like T, it also has a very defensive business with predictable revenues and income. In 2012, shares have risen nearly 3%, with all of those gains coming in May despite the broad sell-off in stocks. VZ shares are now sitting at new 52-week high levels and appear to be benefiting from plummeting bond yields and risk aversion in more cyclical market sectors.

Posted-In: Long Ideas Dividends Hedge Funds Technicals Trading Ideas General


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