In such a volatile bear market, one way that investors can lower their market exposure while still holding long positions in stocks is to buy stocks with low betas. There are several options out there for low beta stocks, but these three are among the best buys for investors looking to buy stocks with low betas.
McDonald's Corporation (MCD) Beta: 0.46
McDonald's stock price is fairly resistant to market changes because in a down economy, consumers view McDonald's as a low price alternative to dining in a restaurant. When looking at the McDonald's income statement over the past few years, its revenue has stayed fairly stagnant, moving from $22.79 billion in 2007 to $24.07 billion in 2010, but its earnings have grown from $2.34 billion in 2007 to $4.95 billion in 2010. McDonald's revenue is expected to increase to $28.2 billion and its earnings per share are expected to increase to $5.71 in 2012, so analysts expect McDonald's to continue to grow. Its beta is lower than Wendy's (0.98), Yum! Brands (0.97), and Starbuck's (1.20). I believe that McDonald's is a great stock to buy right now considering that it has little exposure to market risk and it continues to be the industry leader.
Plains All American Pipeline (PAA) Beta: 0.43
Plains All American is in the oil transportation and storage business. A lot of investors are bullish on pipeline stocks because many believe that regardless of the economy, oil transportation and storage is a needed business. Most pipeline companies are virtual monopolies so they do not need to worry much about competition and dividend investors love their high dividend yields. Plains All American is structured as an MLP, so there are unique tax benefits as well, which you can read more about here and here. Pipeline companies generally have low betas, like Kinder Morgan Management's beta of 0.36. MLPs can be a good option for investors who wish to avoid market exposure, but I suggest talking to a tax advisor before investing in them.
Kimberly Clarke Corp (KMB) Beta: 0.41
Kimberly Clarke is a well run consumer goods conglomerate. Consumer goods firms generally have low market exposure because consumers need cheap household goods regardless of the economy. I believe that Kimberly Clarke is a better option than bigger names like Procter & Gamble and Johnson & Johnson. Its stock has been outperforming (PG) and (JNJ) and its short ratio is relatively low at 2 compared to P&G (3.4) and J&J (3.5), suggesting that investors are still bullish on the stock. Kimberly Clarke also has the highest dividend yield of the three despite having the highest P/E ratio. Holding a consumer goods stock is a good idea in any well-diversified portfolio, and I believe that Kimberly Clarke is a good buy in a down market.