If you’re an advanced equities investor, you’re probably familiar with the beta metric, which measures a stock’s volatility compared with the market as a whole.
Some of you also are probably well-versed in the subject of equity-risk premium. That's how much more return you should get if you invest in stocks instead of risk-free assets like Treasury securities. The equity-risk premium has soared 42% this year.
And how are the concepts related?
“In a rising equity-risk-premium environment, stocks with the highest betas should be hurt the most based on the capital-asset-pricing model,” Bank of America strategists wrote in a commentary.
That model depicts the relationship between risk and expected return for stocks.
So you may want to opt for stocks with low betas now.
Bank of America strategists have offered a list of S&P 500 stocks with the lowest five-year price betas as of May. Here are the top 10 companies:
1. Coterra Energy (CTRA), a shale oil producer. Beta: -0.22.
2. Citrix Systems (CTXS), a cloud computing company. Beta: 0.04.
3. Hormel Foods (HRL), a food company. Beta: 0.08.
4. Clorox (CLX), a cleaning products company. Beta: 0.17.
5. Consolidated Edison (ED), a utility. Beta: 0.22.
6. Regeneron Pharmaceuticals (REGN), a biotechnology company. Beta: 0.25.
7. CMS Energy (CMS), a utility. Beta: 0.26.
8. J.M. Smucker (SJM), a food company. Beta: 0.27.
9. WEC Energy (WEC), a utility. Beta: 0.27.
10. Public Storage (PSA), a self-storage real estate investment trust. Beta: 0.29.
Morningstar’s Take on Coterra
Morningstar analyst Dave Meats assigns the company a narrow moat and puts fair value for the stock at $32. It recently traded at $28.62.
Coterra produces natural gas in the Marcellus Shale (Pennsylvania), and it’s oil is in the Permian Basin (Texas and New Mexico) and Anadarko Basin (Oklahoma).
“Management believes the combined business will be stronger because of geographic diversification and overhead synergies,” Meats wrote in a commentary.
“Coterra's Marcellus assets are ideally located in the northeast portion of the play fairway, which mainly yields dry gas,” he said. And, “the firm has abundant inventory in the liquids-rich part of the portfolio.”
Morningstar’s Take on Clorox
Morningstar analyst Erin Lash gives Clorox a wide moat and puts fair value for the stock at $161. It recently traded at $148.
“The pandemic prompted consumers to scour the shelves for Clorox's fare, boosting sales,” she wrote in a commentary. “And even as volume growth is decelerating, we don’t think consumers are turning their backs on Clorox’s cleaning and disinfecting products, as sales remain well above where they were before the pandemic.”
Still, “Clorox (along with a host of players in an array of industries) is facing a rampant surge in broad-based cost pressures,” Lash said.
The author of this story owns shares of Clorox.
