The Best 3 Stocks to Sidestep This Volatile Market

The past couple of years have conditioned investors to buy on the dip and chase after growth stocks with abandon. 

But the market’s recent performance has demonstrated that rules have changed. You need a new game plan.

A major catalyst for the recent selloff is that it’s increasingly clear that the second Trump administration is willing to endure short-term pain to achieve its goals. 

This pain has already manifested in the form of market volatility and could also result in slower economic growth in the first half of this year. 

This period of “policy uncertainty” is likely to persist. Additionally, it’s contributing to uncertainty about the Federal Reserve’s direction given differing opinions on the impact of tariffs to inflation. 

This could manifest in slower economic growth and delay the Fed’s reaction function. This could further feed into market volatility. 

What does this mean for you?

First, know that this period of uncertainty is a time to focus on risk management … Especially as the climate promises to be fruitful once this storm passes.

One element of managing risk is investing only in stocks with strong defensive characteristics like a robust balance sheet, low debt levels, and improving operational efficiency. 

Second, it’s important to understand that in the new market regime, defensive strategies are likely to outperform. One strategy to consider? Finding stocks with high levels of share buybacks. 

To the uninitiated, this is when companies use their excess cash flow to buy shares on the open market. Buybacks ensure a bid underneath prices and provide support during market volatility. They also provide a modest tailwind to EPS growth.

Stocks with high levels of share buybacks tend to outperform even more in falling-rate environments. It’s also an indication of a strong, underlying business that will remain resilient even in a soft economy. 

The 3 stocks below are all buyback leaders that also all have an overall Zen Rating of A (Strong Buy) or B (Buy). This indicates that in addition to being well-positioned to thrive in the current market, they’re also ranked in the top tier of the 4500+ stocks we track after a careful review of 115 different quantitative factors, dozens of which focus on fundamentals and safety. 

Let’s take a look: 

1. Valmont Industries (NYSE: VMI)

Valmont Industries (VMI) has two major sources of revenue: agriculture and the government. It sells equipment to farmers like irrigation systems, fertilizer distribution equipment, and storage facilities. For cities, it builds and sells items like structures for bridges and roads, streetlights, and traffic light systems.

In terms of buybacks, VMI has been a consistent leader. Historically, it has bought back about 10% of shares every few years. As a result, the company’s share count has declined from 27 million to 20 million over the last 15 years. Last year, CEO Stephen Kaniewski remarked on a conference call that, “Cash flow’s our muscle. We’ll keep rewarding shareholders.” 

Given this powerful tailwind behind VMI, it’s not surprising that Steve Reitmeister, Editor-in-Chief of the Zen Investor stock-picking newsletter, has included it in his portfolio. 

His bullishness stems from the company’s track record of topping earnings estimates for 7 straight quarters, top analysts pounding the table to buy with lofty price targets, and its unique combination of value and growth. 

In adverse conditions, investors should prioritize stocks with strong Component Grades in categories like Financials. Out of 4,500 stocks, VMI is in the top 2% for Financials due to its strong balance sheet, history of operational improvements, and low levels of debt.

VMI is rated an A (Strong Buy) by the Zen Ratings, placing it in an elite group of companies. Strong buy-rated stocks have produced an annual return of 32.5% since 2003, easily outpacing the S&P 500’s average annual 10.8% return. 

2. Comcast Corp. (NYSE: CMCSA)

Comcast (CMCSA) consistently tops the ranks among leaders in share buybacks. Over the last decade, the company has reduced its share count by 23%.

The company’s revenues are quite stable given its legacy cable and internet businesses. Over the last 4 years, the company has had a bumpy ride with attrition in the cable segment due to many people getting rid of cable TV. 

This headwind is now abating. It’s also priced into the stock given its 42% decline from its high in 2021. Yet, EPS grew by 32% over this period, and the company hiked its dividend payout by 36%. 

It also resulted in the company’s P/E ratio falling from 16 to 8, and its dividend yield doubling from 1.7% to 3.4%. 

It’s a fair bet that investors will value these characteristics in a falling-rate and slowing-growth market environment. In its last earnings report, the company approved a $15 billion share repurchase program which is equivalent to 12% of the company’s market cap.

According to the Zen Ratings, Comcast is rated a B (Buy). In terms of Component Grades, Comcast scores in the top 4% for Value. This isn’t too surprising given its forward P/E of 7.4, P/FCF of 8.7, and consistent track record of hiking dividends.

3. PayPal Holdings (Nasdaq: PYPL)

PayPal (PYPL) was founded in 1998 and is a pioneer in digital wallets and payments. It's an essential cog in the Internet economy as it earns a small fee for processing payments. Recently, the company has been looking to add higher-margin services such as analytics, advertising, cryptocurrency trading, and buy now pay later as growth in its core business slows.

Paypal is also very cheap with a forward P/E of 12. Despite this, the company retains solid growth prospects. Analysts are expecting average earnings and revenue growth of 16% and 6%, respectively, over the next 5 years. 

In terms of catalysts, the stock should benefit from a more favorable regulatory environment and lower corporate tax rates. 

In addition to an attractive valuation, the stock price will also be supported by its pace of steady buybacks. 

The company has authorized about $19 billion in share repurchases which is particularly impressive given its market cap is $69 billion. Over the last 7 years, it’s reduced share count by 20%. 

Our quant ratings model is also bullish on PYPL as the stock has an overall B (Buy) Zen Rating, which has produced an annual return of 19.8% since 2003. PYPL is also well-regarded by Wall Street analysts. 

15 out of 23 analysts covering the Stock have a Strong Buy or Buy rating, while the other 8 have a Hold rating. Notably, the stock has no Sell or Strong Sell rating. Overall, they have a consensus price target of $96 which is 36% above the current price.

Conclusion

Investors need to adjust to this new paradigm. 

The Trump “put” is on hiatus, while the Fed’s reaction function is also scrambled, at the moment. Doesn’t mean that prices can’t go up. It just means that risks are elevated. 

Prioritizing stocks with buybacks is one way that investors can protect their portfolios, while also being exposed to the bullish catalysts that lay dormant on the other side. 

What to Do Next?

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