JPMorgan’s Mislav Matejka identifies a compelling buying opportunity in low-volatility stocks, which have underperformed recently due to rising bond yields. These dividend-paying safe havens, including Coca-Cola, Rollins, and Procter & Gamble, are seen as attractive entry points that could perform well across various macroeconomic scenarios, especially if bond yields stabilize or even surge.
JPMorgan Chase has identified a significant buying opportunity in a segment of the stock market that has recently fallen out of favor: low-volatility stocks. These safe-haven assets, which typically exhibit minimal price fluctuations, currently offer investors a chance for future upside while also providing consistent dividend payments.
According to Mislav Matejka, JPMorgan's head of global and European equity strategy, low-volatility stocks across the United States and Europe have experienced a notable downturn in recent months. This underperformance has been largely in inverse correlation to the rise in bond yields. Historically, these companies are found in resilient sectors such as consumer staples, healthcare, utilities, insurance, and industrials, known for their stability and reliable dividends.
Since the onset of the Middle East conflict, U.S. low-volatility equities have dropped by 6%, while bond yields have surged by 55 basis points (0.55%). Matejka suggests that if bond yields stabilize, these stocks are poised for a rebound, mirroring their rally earlier this year when yields were falling. Even if bond yields were to spike towards 5% for the 10-year Treasury, Matejka posits that low-volatility stocks could break their inverse correlation and begin to trade more favorably. The strategist anticipates lower yields in the medium term, reinforcing the attractiveness of this trade.
"The… low Vol trade is worth considering now given the attractive entry point on the back of past weakness, and given that it is likely to work in a range of macro scenarios from here," Matejka wrote, emphasizing that the investment is not contingent on a broader market decline.
JPMorgan's low-volatility index highlights several stocks currently rated overweight by the firm:
- Coca-Cola: This beverage giant, a long-time favorite of Warren Buffett, offers a 2.6% dividend yield. Despite being largely flat over the past three months, Coca-Cola beat first-quarter earnings estimates and raised its full-year guidance, projecting comparable earnings per share growth of 8% to 9%. CFO John Murphy indicated confidence in navigating commodity volatility, with an average analyst rating of overweight and nearly 9% upside potential according to FactSet.
- Rollins: The pest control company provides a 1.37% dividend yield and is highly regarded on Wall Street, with an average overweight rating and nearly 22% upside to its price target. Morgan Stanley's Greg Parrish lauded Rollins' "unique go-to-market strategy and culture of service" after a recent investor day, despite the stock losing almost 11% in the last three months.
- Procter & Gamble: Maker of household brands like Tide and Pampers, P&G yields 3.01% but has seen a 13% decline in the last three months. The company surpassed quarterly earnings and revenue expectations but deferred fiscal year 2027 guidance due to uncertainties from the Iran war's impact on costs and consumer spending. CFO Andre Schulten noted a "stable" yet "bifurcated" U.S. consumer. Analysts rate P&G an average overweight, with about 15% upside to its price target.
