"The Safety Bubble Deflates," goes the title of a new report from Bernstein's Seth Masters, adding his name to those voices suggesting "safe" assets have become otherwise.
Even though utilities, telecom, and consumer staples have underperformed of late, says Masters, their relative valuations are still well above the average over the last 50 years. "In periods of stress, investors tend to prize stability and safety too much. But in time, investors discover that every investment carries with it some degree of risk: if not risk of loss, then risk of inadequate growth."
Barron's Jack Hough says the "low beta" approach is a flawed one: First, volatility can change quickly as companies' or industries' fortunes shift; Second, beta tells one nothing about whether a stock's valuation is high or low. In a similar warning over low volatility stocks, BAML suggests looking for companies with smooth earnings rather than smooth stock prices. Screening for such, Hough finds CSX Corp (CSX -0.6%), DuPont (DD +0.6%), Cisco (CSCO -0.6%), and Halliburton (HAL -0.8%).