When it comes to investing in a bull market, traders often go for big growth names. As we’ve seen with market selloffs, that can be a big problem on a pullback, as those high-growth names get knocked down the most.
Traders might instead want to consider a different tack, and embrace companies that have low volatility. They may be slower to gain over time, but they’re also likely to hold their own as a defensive play when markets get volatile.
One such low-volatility name is PepsiCo (PEP). The food and beverage giant has a Beta of 0.65, meaning it moves about two-thirds as much as the overall market in a given day.
Over the past year, earnings have dropped, but revenue has done well, growing by 12 percent amid some global economic uncertainties.
Yet the company’s wealth-creating track record over the long haul makes it a solid buy now, with shares still well off their 52-week highs.
Action to take: Investors can get a large basket of brands for under 25 times earnings at today’s prices, and lock in a starting, but growing, dividend yield of about 2.6 percent.
For traders, the July $170 calls look reasonable at about $4.00. The option could turn a modest move higher in the coming months into a high double-digit gain for traders who hang on as the stock continues to rebound.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.