Low-volatility stocks may offer stability, but that often comes at the cost of slower growth and the upside potential of more dynamic companies.
Choosing the wrong investments can cause you to fall behind, which is why we started StockStory - to separate the winners from the losers. That said, here are three low-volatility stocks that don’t make the cut and some better opportunities instead.
McCormick (MKC)
Rolling One-Year Beta: 0.32
The classic red Heinz ketchup bottle’s competitor, McCormick (NYSE: MKC) sells food-flavoring products like condiments, spices, and seasoning mixes.
Why Are We Wary of MKC?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Earnings growth underperformed the sector average over the last three years as its EPS grew by just 2% annually
- Capital intensity has ramped up over the last year as its free cash flow margin decreased by 4.8 percentage points
McCormick’s stock price of $65.70 implies a valuation ratio of 20.8x forward P/E. Dive into our free research report to see why there are better opportunities than MKC.
Ducommun (DCO)
Rolling One-Year Beta: 0.88
California’s oldest company, Ducommun (NYSE: DCO) is a provider of engineering and manufacturing services for high-performance products primarily within the aerospace and defense industries.
Why Are We Cautious About DCO?
- Sales pipeline suggests its future revenue growth may not meet our standards as its average backlog growth of 3.8% for the past two years was weak
- Poor free cash flow margin of 1.4% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Underwhelming 4.5% return on capital reflects management’s difficulties in finding profitable growth opportunities
Ducommun is trading at $93.41 per share, or 23x forward P/E. To fully understand why you should be careful with DCO, check out our full research report (it’s free).
ANI Pharmaceuticals (ANIP)
Rolling One-Year Beta: 0.46
With a diverse portfolio of 116 pharmaceutical products and a growing rare disease platform, ANI Pharmaceuticals (NASDAQ: ANIP) develops, manufactures, and markets branded and generic prescription pharmaceuticals, with a focus on rare disease treatments.
Why Does ANIP Give Us Pause?
- Subscale operations are evident in its revenue base of $747.4 million, meaning it has fewer distribution channels than its larger rivals
- Efficiency has decreased over the last five years as its adjusted operating margin fell by 5.6 percentage points
- Negative returns on capital show management lost money while trying to expand the business
At $93.05 per share, ANI Pharmaceuticals trades at 14.4x forward P/E. Read our free research report to see why you should think twice about including ANIP in your portfolio.
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