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Amidst a turbulent yet ultimately positive first half of 2026 for the stock market, UBS recommends investors add low-volatility stocks to their portfolios. The firm has identified resilient companies, primarily in the industrials and healthcare sectors, that offer attractive valuations and dividend yields. Key picks include Yum Brands, Lockheed Martin, and McDonald’s, which are highlighted for their stable operations and potential for steady returns in uncertain economic conditions.
Despite a robust first half of 2026 for the stock market, which saw the S&P 500 climb 9.6% and achieve its strongest quarterly advance since 2020 in Q2, investors are being advised by UBS to fortify their portfolios with low-volatility stocks. The market's gains were not without their challenges, including geopolitical tensions like the start of the Iran war and significant sector rotations out of technology stocks.
To help investors navigate these choppy waters, UBS has identified a selection of stocks characterized by low volatility and resilient fundamentals. Jonathan Carson, UBS HOLT sector specialist, noted in a report that while capital has flowed into AI-driven areas, leading to underperformance in low-volatility stocks, their valuations are now becoming more attractive. The firm's HOLT framework was used to identify high-quality companies with limited price swings trading at historically favorable valuations.
The identified stocks are primarily concentrated in the industrials and healthcare sectors, with many also offering dividend payouts. Key recommendations include:
- Yum Brands: The parent company of Taco Bell and KFC is recognized for its stable, high-quality restaurant operations and a consistent cash flow return on investment (CFROI) exceeding 30% for most of the past decade. UBS projects Yum Brands' CFROI to reach an all-time high by 2027, driven by a strategic divestment of its Pizza Hut segment and a renewed focus on international expansion for Taco Bell, alongside the rollout of a KFC loyalty program. The stock is up over 10% in 2026, nearing a 52-week high, and offers a 1.79% dividend yield. While 13 out of 28 analysts rate it a buy or strong buy, consensus price targets suggest a modest 3% upside over the next 12 months.
- Lockheed Martin: This defense contractor, known for manufacturing the F-35, has seen its shares rise approximately 10% in 2026 and offers a 2.59% dividend yield. UBS anticipates a positive market reaction to its upcoming second-quarter earnings, expecting a 'beat and raise' scenario against a low bar. A significant $35 billion award for its Terminal High Altitude Area Defense (THAAD) interceptors and expected upside for its Missiles and Fire Control business could further boost its 2026 performance. Despite a largely neutral Wall Street sentiment (14 out of 24 analysts rate it a 'hold'), consensus price targets indicate nearly 16% upside.
- McDonald's: The global burger giant, despite a nearly 8% dip in its stock performance in 2026, offers a 2.64% dividend yield. UBS rates McDonald's as a 'buy,' citing its strong global positioning despite macroeconomic headwinds and slower trends. The bank believes the risk/reward profile is attractive due to potential catalysts for market share gains, strengthened U.S. sales growth, and its defensive characteristics that ensure earnings stability in volatile markets. A significant majority of Wall Street analysts (20 out of 36) recommend a buy or strong buy, with consensus price targets suggesting approximately 17% upside.
Other notable companies highlighted by UBS for their low volatility and resilience include Eli Lilly & Co., Stryker, Charles Schwab, Medtronic, and Keurig Dr Pepper.
