As September begins with market turbulence, Evercore ISI recommends investors consider “negative beta” stocks to protect portfolios against volatility. These stocks, which historically move opposite to the broader market, are crucial hedges amidst concerns over rising oil prices, inflation, and bond yields. The firm’s strategists, led by Julian Emanuel, screened the S&P 500 to identify 115 such stocks, narrowing down to a top 20 that heavily feature sectors like Financials, Utilities, Consumer Staples, and Energy, with Occidental Petroleum and Chevron highlighted for their strong negative betas and performance.
Stocks kicked off September on a turbulent note, but Evercore ISI offers a strategic solution for investors navigating the choppiness: "negative beta" stocks. These assets, which historically move inversely to the broader market, can serve as a vital hedge against escalating volatility. Recent market jitters have been fueled by concerns over surging oil prices and their potential impact on inflation. While the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average managed to rebound on Wednesday, breaking a three-day losing streak partially attributed to elevated bond yields, the underlying risks persist.
Julian Emanuel and his team of strategists at Evercore ISI emphasize the importance of incorporating negative beta stocks into long-term portfolios to "ride out" periods of instability. They point to a confluence of factors, including interest rate fluctuations, geopolitical tensions, and the upcoming midterm election, as potential catalysts for heightened market swings this month.
Evercore ISI conducted an extensive screen to identify S&P 500 companies whose daily movements over the past six months have consistently countered the broader index's trajectory. This month's curated list comprises 115 such stocks, a slight dip from 121 in August, from which the firm meticulously selected its top 20 recommendations.
Notably, sectors like Financials, Utilities, Consumer Staples, and Energy collectively constitute nearly 70% of these top-tier negative beta picks. Evercore ISI specifically highlights energy stocks, describing the sector as a "synthetic S&P 500 put option" due to its inverse relationship with the broader market under geopolitical pressure.
Among the standout energy picks is Occidental Petroleum, boasting an impressive six-month beta of negative 1.23, ranking as the fourth most negative among Evercore's top 20. Analyst Stephen Richardson maintains an outperform rating on the oil and gas giant, which recently reported robust second-quarter results, including $3 billion in free cash flow (before working capital from continuing operations)—its highest since Q3 2022. Occidental also significantly reduced its debt by $1.9 billion, bringing the total to $11.8 billion for the quarter.
Chevron also made the cut with a beta of -0.90, also rated outperform by Richardson. The oil major recently unveiled ambitious plans to more than double its Venezuelan production over the next five years, backed by a $7 billion investment. This initiative aims to boost daily output to 600,000 barrels by 2031, a substantial increase from the current 280,000 bpd.
Beyond energy, Evercore ISI's defensive consumer staples recommendations include the prominent supermarket chain Kroger and tobacco industry leader Altria, reinforcing the strategy of cushioning portfolios with stocks that exhibit resilience during market downturns.
