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3 Low-Beta Stocks to Buy for the September Effect

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September is renowned for its seasonal weakness, while stocks are traditionally slated to fall in the two months leading up to election day. The U.S. economy is also not out of the woods and may lead to a broader sell-off in the equity market.

Stocks were already subjected to volatility in the first three trading sessions of September. But should you sell? Ignore the choppy stock market! Buy stocks that are less volatile than the broader market. These stocks also have a solid upside potential. Some of the prominent names are ServiceNow, Inc. (NOW - Free Report) , Interactive Brokers Group, Inc. (IBKR - Free Report) and Pilgrim's Pride Corporation (PPC - Free Report) . 

The September Effect – Explained

Wall Street remains on the edge in September, with stocks mostly underperforming. Carson Group’s Chief Market Strategist, Ryan Detrick said that September has been the worst-performing month since 1950. Fisher Investments added that September is the only month that posted an average negative return over the past 98 years.

So, why do stocks fall in September? Once traders return to work from the summer vacation, they tend to adjust their portfolios in September, which increases selling pressure. Mutual funds also tend to close out their loss-making positions during this period for tax purposes.  

2 Months Leading to Election Day is Bad for Stocks

The countdown to the presidential election day (Nov. 5) has already begun. During these two months, stocks have historically witnessed heightened volatility. 

The broader S&P 500 has registered a negative return in the months leading up to the presidential elections since 2008, with an average decline of 5.8%, according to the Dow Jones Market Data. Have a look at the table –

2-Month Performance Leading up to Election Day

Zacks Investment Research
Image Source: Dow Jones Market Data

Soft Economic Data Revives Recession Fears

The recent weak economic data indicates a softening economy and has raised recession concerns, which doesn’t bode well for stocks. In July, the jobless rate increased to 4.3%, while hiring slowed down substantially last month.

The Fed Beige Book showed that economic activity was unchanged or even declined in nine districts recently, and the Institute of Supply Management (ISM) noted that factory activity was in a deep slump and may not improve until after the election. The ISM’s manufacturing index shrank for the fifth consecutive month in August.

The Winning Strategy – Buy Low-Beta Stocks

As the stock market entered the worst month of the year, market participants should create a plan to have low-risk assets and an amalgamation of parameters that lead to better returns. 

The best way to do so is by creating a portfolio of low-beta (0 to 1) stocks. They are inherently less volatile than the markets they trade in. 

However, investors may not relate a low-beta stock with encouraging returns. Hence, low-beta stocks with positive earnings estimate revision have been considered. An increase in earnings estimates signifies a sound company whose stock is positioned to outperform the broader market. These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ServiceNow Stock – Has a Beta of 0.98

ServiceNow provides cloud computing services. This low-beta stock currently has a Zacks Rank #2.

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The Zacks Consensus Estimate for PPC’s current-year earnings has increased 1.8% over the past 60 days. The company’s expected earnings growth rate for the current year is 27.6%.

Interactive Brokers Stock – Has a Beta of 0.80

Interactive Brokers Group operates as an automated global electronic market maker and broker. This low-beta stock has a Zacks Rank #2.

Zacks Investment Research


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The Zacks Consensus Estimate for IBKR’s current-year earnings has increased 3.8% over the past 60 days. The company’s expected earnings growth rate for the current year is 18.4%.

Pilgrim's Pride Stock – Has a Beta of 0.82

Pilgrim's Pride Corporation processes and distributes fresh, frozen and value-added chicken and pork products. This low-beta stock has a Zacks Rank #1.

Zacks Investment Research


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The Zacks Consensus Estimate for PPC’s current-year earnings has increased 12.7% over the past 60 days. The company’s expected earnings growth rate for the current year is 183.4%.

Shares of ServiceNow, Interactive Brokers and Pilgrim's Pride have soared 18.4%, 52.1%, and 64.4%, respectively, in the year-to-date period.
 

Zacks Investment Research


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Interactive Brokers Group, Inc. (IBKR) - free report >>

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