Radek Strnad
3 min read
Stability is great, but low-volatility stocks may struggle to deliver market-beating returns over time as they sometimes underperform during bull markets.
Choosing the wrong investments can cause you to fall behind, which is why we started StockStory – to separate the winners from the losers. That said, here are three low-volatility stocks to steer clear of and a few better alternatives.
Rolling One-Year Beta: 0.47
Known for its transparent, customer-centric approach and wide selection of vehicles, Carmax (NYSE:KMX) is the largest automotive retailer in the United States.
Why Should You Sell KMX?
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Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
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Widely-available products (and therefore stiff competition) result in an inferior gross margin of 10.9% that must be offset through higher volumes
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High net-debt-to-EBITDA ratio of 16× could force the company to raise capital at unfavorable terms if market conditions deteriorate
CarMax’s stock price of $44.24 implies a valuation ratio of 12.6x forward P/E. Dive into our free research report to see why there are better opportunities than KMX.
Rolling One-Year Beta: 0.78
Established in 2013 after a restructuring, News Corp (NASDAQ:NWSA) is a multinational conglomerate known for its news publishing, broadcasting, digital media, and book publishing.
Why Is NWSA Risky?
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Products and services have few die-hard fans as sales have declined by 1.3% annually over the last five years
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Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2.5%
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Low returns on capital reflect management’s struggle to allocate funds effectively, and its decreasing returns suggest its historical profit centers are aging
At $26.64 per share, News Corp trades at 28x forward P/E. To fully understand why you should be careful with NWSA, check out our full research report (it’s free for active Edge members).
Rolling One-Year Beta: 0.61
Known for its iconic duck mascot that has quacked “Aflac!” in commercials since 2000, Aflac (NYSE:AFL) provides supplemental health and life insurance policies that pay cash benefits directly to policyholders for expenses not covered by their primary insurance.
Why Do We Pass on AFL?
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Insurance offerings face significant market challenges this cycle as net premiums earned contracted by 7.8% annually over the last four years
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Pre-tax profit margin declined by 9.7 percentage points over the last two years as its sales cratered
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Estimated book value per share growth of 4.6% for the next 12 months implies profitability will slow from its two-year trend
