LONDON -- It is frustrating when the market falls, taking all your shares with it. If market movements are having a massive effect on your portfolio, it may be time you picked up some low-beta shares.
The "beta" is a statistical measure of how a company's share price has moved relative to the rest of the market. A company with a beta of less than one has been found to move less than the market. This is typically because low-beta shares are less risky. Often, they are reliable and predictable businesses. This means that investors are less likely to believe economic or market developments will have a significant impact on long-term earnings.
I've used market statistics to find the largest companies with a beta of less than 0.8. Some names here will be familiar to defensive or income-focused investors.
Market Cap (millions of pounds)
Vodafone (ISE: VOD.L)
Royal Dutch Shell
British American Tobacco (ISE: BATS.L)
Diageo (ISE: DGE.L)
Tesco (ISE: TSCO.L)
*This is an average of opinions on whether the special dividend will be paid again.
I've picked four of these out as particularly interesting.
Anyone who thinks of Vodafone as a utility stock needs to see the company's most recent trading statement. Revenue was hit by a cut in termination rates (the price Vodafone can charge another network to call a Vodafone handset). Sales declined 7.7% in Italy and fell 10% in Spain.
These figures suggest that Vodafone's long-term earnings are not exactly copper-bottomed.
However, the dividend situation at Vodafone offers real hope. There remains a significant possibility that Vodafone will pay a special dividend again this year. Better still, this dividend could continue to recur.
Even without the special dividend, Vodafone is a great income stock. On last year's payout of 9.52 pence, the shares carry a 5.3% yield. If shareholders get the same special dividend again this year, that yield hits 7.6%.
The consensus forecast is for an 18.2% decline in earnings for 2013. Modest earnings growth is expected to return the year after.
As the owner of a portfolio of world-class alcoholic beverage brands, Diageo is a true market leader.
With a dividend that has increased every year since 1998, Diageo has long been popular with income investors. Today, however, the shares trade at an all-time high. This rise has had the effect of pushing down Diageo's dividend yield. Even though a 10.5% dividend rise is expected for 2013, the shares would then yield only 2.8%. That's considerably less than the average yield of an FTSE 100 company.
On the other hand, Diageo is by no means an average company. Diageo delivered growth throughout the worldwide economic downturn. In the last five years, sales have increased, on average, 7.5% a year. Earnings per share increased by 14% a year. In those five years, the shareholder dividend rose 5.9% per annum on average.
Diageo is expected to deliver 10.4% earnings growth for 2013.
3. British American Tobacco
Smokers are well-known for their brand commitment. Cigarette consumption is also a strong addiction for many smokers. This makes BATS's long-term sales very dependable.
These facts are a huge contribution to BATS's success as an investment. The company has been increasing its shareholder dividend every year since 1999. In the last five years, that income stream has been increasing, on average, by 17.7% per annum.
However, there are real signs that the going will be much tougher for the tobacco industry in the next 10 years than it was in the last 50. Worldwide legislation of tobacco consumption is becoming increasingly restrictive. Swiss voters recently went to the polls to decide whether to introduce a ban on smoking in enclosed spaces. In Australia, plain packaging is about to be enforced.
Sales growth at BATS last year came in at 3.5%. Growth is expected to be even less this year. Investors need to ask themselves if BATS is a company worth paying 15.4 times forecast earnings for.
Since its disappointing trading update in January, Tesco has become one of the most debated FTSE 100 shares.
Tesco has been the top dog for a generation, but there are growing signs that its lead is narrowing. Rival Sainsbury's market share has been increasing, and premium supermarket Waitrose is also coming up fast.
Away from food, it is difficult to see how (or why) Tesco would compete with Amazon on home goods. I did a quick price comparison on a 40-inch Samsung TV between the two stores. Despite an apparent 49 pound discount, Tesco Direct was still 107 pounds more expensive.
Although brokers now expect earnings to fall marginally for 2013, the dividend is expected to rise (albeit very slightly). Earnings and dividend are expected to show better growth for 2014.
Can Tesco engineer an in-store turnaround? Will nonstore initiatives (household goods, banking, etc.) be a success or an expensive failure? While Tesco's history is impressive, to me its future is less clear than it has been for a long time.
If you like the idea of investing in low-beta stocks, then get the free Motley Fool report "8 Shares Held By Britain's Super Investor." This report profiled the holdings of Neil Woodford, widely regarded as the best money manager in the U.K. today. Woodford owns a stake in some of the above companies. Get the report now to learn which shares he favors and why.
"10 Steps To Making A Million In The Market"is the very latest Motley Fool guide to help Britain invest. Better. We urge you to read the free report today -- it may transform your wealth.
Further investment opportunities:
The article 10 Shares to Avoid Market Chaos originally appeared on Fool.com.
David does not own share in any of the above companies. The Motley Fool owns shares of Tesco.Motley Fool newsletter serviceshave recommended buying shares of Vodafone Group, Diageo, and Unilever. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.