Periods of high volatility in the stock market can make for some stressful days as an investor. This is particularly true if I hold high-growth stocks or penny shares. Both are known to have sharp share price movements, both higher and lower. There’s nothing wrong with owning those type of shares, but I’m looking at adding a couple of FTSE 100 shares to my balanced portfolio to reduce the swings its value.
There are different ways that someone could define low volatility. I’ve taken the step to look at the difference between the highest price and the lowest price of a stock over the past year. From the variety of FTSE 100 stocks I calculated, the average high-to-low was around 40%.
A veteran of the market
Coming in below this mark at 23% is Bunzl (LSE:BNZL). The distribution and outsourcing business might have enjoyed a small share price range over the year, but it’s still up 15% over this period. This tells me that it has been trending higher, but in a controlled manner.
Part of the reason why I think this is a low volatility stock is due to the size and nature of its operations. The firm can technically date its origins back to 1854. Even though it has gone through natural swings in demand over recent decades, it has proven to be a well-run company that’s profitable. As such, it doesn’t have large share price swings as a younger start-up business would experience.
Even though the firm is mature, it still generates a healthy profit. Last year, the profit before tax was £698.6m, up from £634.6m the previous year. Therefore, with a continuation of this trend, I think it’s a great stock for long-term returns without crazy movements.
As a risk, earlier this year it did flag up weaker demand from North American operations. I do need to monitor this going forward to ensure it’s not a larger issue.
The sign points north
Another stock with a range of 25% over the past year is Compass Group (LSE:CPG). New highs have been hit over the past month, with the share price up 17% over the last year.
The jump in the share price in late July came from stronger-than-expected quarterly results. The business had revenue growth of 10.3% versus the same period last year.
The catering and hospitality provider noted that this wasn’t down to any large one-off deals, but rather new business growth. This is great and bodes well for the rest of the year.
Of course, the spike in the share price does add to volatility, which is what I’m trying to avoid here. Yet there does need to be a sanity check. After all, if the volatility is based on the share price jumping higher, it’s nowhere near as concerning as if it was caused by sharp moves lower.
One concern is the impact of exchange rates on the firm. It recently noted that the current exchange rates would mean taking a negative impact of £83m on revenue this year.
Put together, I’m thinking about adding both stocks to my portfolio to help to balance out other more risky stocks that I hold.
