“Slower growth suggests that market volatility will rise,” says BlackRock’s Chief Investment Strategist Russ Koesterich. Despite that, he suggests buying stocks. To avoid the inherent risk in stocks, look for low-beta necessity stocks like American Water Works Company Inc (NYSE:AWK), Aqua America Inc (NYSE:WTR), and American States Water Co (NYSE:AWR).
What’s an investor to do?
The stock market is hovering around all time highs. Bond yields are hovering around all time lows. The economy is stuck in neutral. BlackRock expects volatility to kick higher, but believes the risks in bonds outweigh the risks in stocks. But stocks are far from risk free investments. What’s an investor to do?
One way to sidestep market volatility is to focus on low beta stocks. Beta is a measure of volatility relative to the broader market. A beta of 1 suggests that a stock will move in lock-step with the market. A beta below one means that the stock is expected to move less than the market.
Low beta alone, however, isn’t the only way to keep out of risk’s way. You can also buy stocks that sell necessities. One of the best options here are low beta food stocks. However, you can go one step further on the necessity scale and buy companies that sell water. You can live for weeks without food, but only a few days without water!
The big fish
The largest public water company is American Water Works Company Inc (NYSE:AWK). It has a $7 billion market cap and provides water and waste water services to 1,500 communities. Its largest operations are in New Jersey, Pennsylvania, Missouri, Illinois, and Indiana. The company benefits from economies of scale and diversification.
American Water Works Company Inc (NYSE:AWK) was bought by a foreign investor and then spun off in a series of transactions that ended in 2009. In the three years since being fully divested, the top line has headed roughly higher. The bottom line, meanwhile, has advanced each year. Dividends have been increased regularly and are a corporate focus.
With a beta about half that of the market and a product that we all need, American Water Works Company Inc (NYSE:AWK)’s business and stock look like good ways to avoid market and economic volatility. The yield of around 2.80% is low in the utility world, but not unusual in the water utility space.
Consistent dividend growth
Aqua America Inc (NYSE:WTR) has around $4 billion in market cap. It serves 3 million people in 10 states. However, Pennsylvania accounts for about 55% of the company’s top line.