4 of the Best Stocks to Counter a Volatile October

U.S. equity benchmarks just saw the worst September in almost a decade. In fact, all three major indexes notched their worst performance in the month since 2011, when the European debt crisis took a toll on markets worldwide. To put things into perspective, the Dow and the Nasdaq slumped 3.5% and 4.6%, respectively, in September. Meanwhile, the S&P 500 declined 3.9%, and the broader index witnessed a 5% drop from its recent peak for the first time in 227 trading days, per Dow Jones Market Data, citing a MarketWatch article.

For quite some time, the S&P 500 hasn’t experienced a 5% or more pullback. But in September, the stock market’s buoyancy fizzled due to myriad issues. First, investors dumped stocks on contagion fears linked to the collapse of China’s real estate giant, Evergrande Group. Of course, the property behemoth didn’t have enough cash to clear its humongous debt. Second, companies in the United States have begun to witness downward earnings estimate revisions, primarily due to supply-side constraints, which again roiled markets. Last, bond yields climbed and particularly damaged the allure of growth-oriented technology stocks, mostly perceived as risky investments.

Worsening matters, the month of October isn’t expected to be any better for the stock market. Citing Barron’s article, traditionally, the S&P 500 index had decreased 0.4% in October after the broader index dropped more than 2% in September, which was the case this time. Moreover, we can not completely write off the October effect. It states that the stock market tends to decline in October and the month has witnessed some of the biggest stock market crashes. Notable among them are the 1929’s Black Tuesday and Thursday, and the great crash of 1987, which occurred on Oct 19. On that particular day, the Dow had tanked more than 20% on a single trading session, making it debatably the worst single-day decline in history.

This October, we may not expect such big crashes but certain things aren’t looking up for the stock market either. Many market pundits believe that the Fed will eventually move away from its accommodative policy, which was helping the stock market chug along amid the pandemic. The Fed is at the moment widely expected to hike rates in 2022 and the European Central Bank is also likely to do the same next year. Additionally, concerns about a debt-ceiling breach and a possible government shutdown are expected to impact the economy vis-à-vis the stock market at a time when consumer sentiment is at a low.

Thus, with Wall Street expected to face higher bouts of volatility in October, it’s prudent for investors to invest in stocks that provide risk-adjusted returns. Hence, it’s imperative to create a portfolio of low-beta stocks, which generally tend to be less volatile than the broader market. At the same time, such stocks should be dividend payers. Any stock that pays dividend consistently exhibits financial strength, healthy fundamentals and a solid business structure that help them stay afloat amid market vagaries. We have, therefore, highlighted four such stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

BARINGS BDC, INC. BBDC is an externally managed business development company that primarily makes debt investments in middle-market companies. The company has a Zacks Rank #2 and a beta of 0.7. It has a dividend yield of 7.6%, while its five-year average dividend yield is 9.1%. The company’s expected earnings growth rate for the current year is 40.6%.

FirstEnergy Corporation FE is a leading regional energy provider dedicated to safety, operational excellence and responsive customer service. The company has a Zacks Rank #2 and a beta of 0.24. It has a dividend yield of 4.3%, while its five-year average dividend yield is 4.2%. The company’s expected earnings growth rate for the current year is 6.7%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Pfizer Inc. PFE is a research-based, global pharmaceutical company that discovers, develops, manufactures, and markets medicines for humans and animals. The company has a Zacks Rank #2 and a beta of 0.74. It has a dividend yield of 3.6%, while its five-year average dividend yield is 3.8%. The company’s expected earnings growth rate for the current year is 84.2%.

Redwood Trust, Inc. RWT is a self-advised and self-managed real estate investment trust. The company has a Zacks Rank #1 and a beta of 0.97. It has a dividend yield of 6.5%, while its five-year average dividend yield is 8.1%. The company’s expected earnings growth rate for the current year is 2,925%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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