Regimes are changing in the market, and this could mean a few things, but today, it means that volatility is back. Whenever these shifts come, specifically to the S&P 500 index, investors tend to decrease their exposure to riskier stocks to look for more defensive names in the market to cushion some of the risks that come with these volatility spikes.
This is where names in the consumer staples sector usually come into play. These stable and predictable business models and product lines usually carry low betas, compressing the volatility that comes with them even with a broader market selloff like the one experienced in recent weeks. Therefore, they are more attractive buy targets for investors to consider, which is why today’s list is important as well.
By keeping an eye on names like Realty Income Co. (NYSE: O) to represent a portfolio of stable and predictable holdings in the real estate sector or other product offerings like tobacco and convenience names through Altria Group Inc. (NYSE: MO) and even a staples beverage brand of soda like PepsiCo Inc. (NASDAQ: PEP) all align to offer investors some of this perceived safety that will be chased as volatility shows it’s here to stay for a little while longer.
Realty Income Offers Investors a Compounding Chance
Investors can see the benefits of holding Realty Income stock, not only through its low volatility profile but also because of its income potential. As a real estate investment trust (REIT), Realty Income offers shareholders a payout of up to $3.21 per share today.
This not only represents a dividend yield of as much as 5.7%, but investors also benefit from this payout being issued monthly rather than the typical quarterly payouts that other companies choose to use instead. Even with these attractive features, the stock trades cheaply enough at 86% of its 52-week high to offer a double-digit upside.
such as the one being called for by analysts from Stifel Nicolaus, who decided to not only reiterate their buy rating on Realty Income stock as of January 2025 but also place a valuation of up to $66 per share on it. Now, this price target would represent a new 52-week high on the stock and also a net upside of as much as 18% from where it trades today.
Institutional Capital Chose Altria Group Stock
As of February 2025, reports show that allocators from the Royal Bank of Canada decided to boost their holdings in Altria Group stock by as much as 17.4%, bringing their net position to a high of $466.8 million today. This is a bullish sign of confidence that investors should consider in this new flight to safer names amid volatility.
However bullish this may seem, it’s not the best feature that Altria stock brings to the table today. Like Realty Income, this company’s stability and predictability also enable its management to offer its shareholders a dividend payout of as much as $4.08 per share today.
Considering today’s prices, which are a bullish 95% of their 52-week highs, Altria Group stock’s dividend would translate into an annualized yield of up to 7.44% to beat inflation and make up for any further volatility that the S&P 500 index may bring to portfolios in the coming months.
Pepsi Stock’s Discount Won’t Last Forever
Even though Pepsi stock now trades at 83% of its 52-week high, which may not seem that bearish at all, other valuation metrics show that the company offers a value entry like no other in the past seven years. When considered from a forward price-to-earnings (P/E) basis, today’s 18.3x multiple falls into the bottom range of regular valuations.
A multiple closer to 23.0x on a forward P/E basis would be normal for Pepsi stock, showing investors how this household name with a low beta can be a perfect addition to this volatility compression portfolio strategy today. Then, there was the recent collapse of the company's bearish sentiment.
Investors can note that up to 22.9% of Pepsi’s short interest collapsed over the past month alone, a clear sign of bearish capitulation in the face of a bullish skew in the stock's risk-to-reward ratio. This could be especially the case as analysts from Citigroup reiterate their buy rating on Pepsi stock, this time also keeping a valuation of up to $170 per share on the name.
Calling for the stock to flirt with its 52-week high of $183.4 per share, these analysts imply that Pepsi can deliver up to 12.2% from where it trades today, bringing an unusual double-digit upside potential in a defensive name.