Market analysts call these low-beta shares. Compared with the rest of the index, statistics show that they have previously been less likely to get carried away by either market surges or sell-offs.
Should these low-beta shares have a place in your portfolio today?
As a pharmaceuticals manufacturer, AstraZeneca‘s (LSE: AZN)(NYSE: AZN.US) customers have little choice whether to buy their products. This brings a high degree of certainty to the company’s future earnings. AstraZeneca uses these profits to pay a big dividend to its shareholders.
The result is that even in market declines, the AstraZeneca share price does not fall heavily. The large dividend provides an incentive for shareholders to continue holding and the reliable earnings stream prevents panic.
The forecast profits for the year put AstraZeneca shares on a 2013 P/E of 9.9, with an expected yield of 5.4%. A slight fall in earnings is expected for 2014.
Water firm Severn Trent (LSE: SVT) provides and treats water and waste water in the UK. Due to the nature of the business, it has very dependable revenues. This brings reliable profits and dividends. When market speculators are looking for a stock to make money on in the short term, Severn Trent is not the type of share that they chase.
Severn Trent’s customers have little choice over whether to use the company’s services. As a result, it is difficult to envisage a situation where Severn Trent’s profits could fall suddenly.
The market clearly loves this and has awarded Severn Trent a premium rating. The shares trade at 20.1 times forecast earnings for 2013 and come with a prospective yield of 4.5%.
Smith and Nephew
Orthopaedic parts manufacturer Smith and Nephew (LSE: SN) is a great play on the ageing populations of developed countries. As the world’s wealthier nations get older, demand for hip/knee replacement surgery is rising.
After making $0.49 in earnings per share in 2007, Smith and Nephew is expected to make $0.76 this year. This is expected to increase again in 2014 to $0.84 per share.
That puts the shares today on a 2013 P/E of 16.5, falling to 15.0 times 2014 forecasts. The shares are expected to yield 2.1% this year, rising to 2.3% for 2014.
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> David does not own shares in any of the above companies.