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Stock Volatility: Get off the Roller Coaster


Pick stocks with low volatility if you want to avoid white knuckles. Most traders crave stock market volatility, while long-term investors seek to avoid it. If you're one of the latter, here's a solution: Buy low-volatility stocks, which "tend to fall a lot less in bear markets and rise almost as much in bull markets," says Harin De Silva, president of Analytic Investors. The Los Angeles firm found that a portfolio drawn from the 25% least volatile blue chips beat the market in the period from 1930 to 2004.

Using standard deviation data found on Morningstar.com, we put together a portfolio of stocks with low monthly stock-price volatility over the past three years. (In statistics, standard deviation is used to measure the amount of fluctuation in a given period.) We also use RiskGrades from Riskgrades.com, which measure fluctuations over the past five months relative to a global benchmark that has a grade of 100. In both cases, the lower the number, the less volatile the stock. While the three-year number is more important, an elevated RiskGrade could indicate a stock is becoming more volatile and should be carefully monitored.

Most important: Any of these stocks can be volatile on its own, so you need a portfolio of 15 or 20 different companies to capture their calming effect.

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Stock

(Symbol)

Industry

Price*

Dividend yield

Risk Grade

Standard Deviation (%)**

Kellogg

K

Food

$55.00

2.3%

60

8.80

Pitney Bowes

PBI

Office equipment

45.74

2.9

64

9.35

Torchmark

TMK

Life insurance

63.39

0.8

55

9.99

General Dynamics

GD

Defense

85.90

1.2

82

10.21

PepsiCo

PEP

Beverages

73.91

2.0

58

10.22

Southern Co.

SO

Electric utility

36.33

4.4

72

10.23

Diageo

DEO

Beverages

89.48

3.7

63

10.24

Progress Energy

PGN

Electric utility

47.02

5.1

83

10.32

Johnson & Johnson

JNJ

Drugs

66.02

2.5

59

10.49

Colgate-Palmolive

CL

Household products

72.00

2.0

50

10.53

General Electric

GE

Diversified

41.53

2.7

63

10.77

Coca-Cola

KO

Beverages

57.80

2.4

61

11.13

Northrop Grumman

NOC

Defense

78.79

1.9

72

11.23

Consolidated Edison

ED

Electric utility

47.20

4.9

77

11.34

Kimberly-Clark

KMB

Household products

69.88

3.0

59

11.53

Anheuser-Busch

BUD

Beverages

52.03

2.6

84

11.70

United Technologies

UTX

Diversified

80.36

1.6

64

11.78

General Mills

GIS

Food

57.36

2.7

68

11.86

Washington Post

WPO

Media

804.95

1.0

42

12.03

Novartis

NVS

Drugs

53.92

1.7

74

12.08

Data: Morningstar, RiskMetrics Group, Yahoo! Finance

*Oct. 8, 2007; **Based on the three-year monthly average By Lewis Braham


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