Stocks to protect your investment portfolio from a rising VIX

Stocks never really stand still. Every now and then in a short time cycle, they tend to jump and have little “hiccups”. These hiccups are characterized by spikes in the volatility index (the VIX), which can provide ample opportunities for traders to make money relatively quickly, but is also a source of headaches for many investors.

Recently, the VIX returned to its 2024 high, a level not seen since February. This time, the spike prompted a small rally in 10-year bond yields, spooking stock investors into believing that the Federal Reserve (the Fed) might choose to skip its interest rate cut plans for the year.

However, not all hope is lost, as savvy investors will know how to navigate these turbulent times with the right mix of reliable and predictable companies in their portfolios.

Actions like The Coca-Cola Co. NYSE: KO, Colgate-Palmolive NYSE:CLand even Residential equity NYSE: EQR it can bring the right mix of low beta (low volatility) behavior along with the financial stability of consumer staples stocks.

It’s all about Coca-Cola’s branding

Thousands of servings of Coca-Cola are enjoyed every day around the world, and virtually no region does not recognize the Coca-Cola logo or can say that its population has never tasted one. This penetration, loyalty, and brand recognition give Coca-Cola the kind of business moat Warren Buffett seeks.

Translated into financials, Coca-Cola’s gross margins are consistently above 58%. Such high margins allow Coca-Cola to keep its pricing power ahead of consumers, assuring investors that the stock could continue to beat inflation for the foreseeable future.

In a year where the U.S. inflation rate remained between 3-4%, 2023 saw Coca-Cola’s revenue rise 8%. What matters to investors is how this revenue is increased, because only 2% comes from growth in actual sales volume and 9% from price increases.

This stock is among the few elite stocks that can raise prices and still see demand grow, as customers are so accustomed and loyal to the brand regardless of price.

Knowing how important a reliable business like this will be in the coming months, analysts at Citigroup Inc. they raised their price targets on the stock to $68 per share, predicting a 14% upside from today’s prices.

Colgate’s Essentials investors can’t miss out

Whether the economy is booming or busting, and whether the VIX is at a five-year high or low, people will still need to brush their teeth in the morning and follow other personal hygiene routines. For this reason, Colgate’s low beta of just 0.4 can save portfolios from potential swings.

Like Coca-Cola, Colgate’s financials show a gross margin rate above 58%, demonstrating this company’s potential pricing power. Furthermore, the analysts of The Goldman Sachs Group they raised their ratings for the stock to $93 per share, a target 6% above today’s price.

Reliable and predictable financial data allows for extensive capital management, which is reflected in the company’s average return on invested capital (ROIC). Over the last 5 years, Colgate has generated an average ROIC of more than 25%; not many others can say the same.

On a one-year performance, stock prices tend to track ROIC rates over the long term, which explains Colgate’s stunning 27% rally in the last 6 months alone.

Residential equity will always have rents

The VIX cushion portfolio would not be complete without the living aspect. Equity Residential’s portfolio will continue to pump out rental income as long as people need somewhere to live, preferably to rent.

Despite the increased volatility hitting markets, hopes of lower interest rates, priced in by May or June 2024 based on the FedWatch tool, are pushing the real estate sector higher.

In the latest quarter, Equity Residential outperformed the Vanguard Real Estate ETF by more than 5%, which could indicate a market preference towards residential properties over other types of properties.

This stock will not offer investors much growth potential because it is a real estate investment trust (REIT). What it can offer, however, is a dividend yield of 4.2% and a low beta of just 0.85. Because of these characteristics, the REIT is now 93% owned by institutions.

Zooming in slightly, the stock trades at a 32% discount to its 2022 high of $94.3 per share, reached the last time the Fed embarked on an interest rate cutting cycle. History may not repeat itself, but it may still rhyme for this title.

Before you consider Equity Residential, you’ll want to hear this.

MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Equity Residential wasn’t on the list.

While Equity Residential currently has a “Hold” rating among analysts, top analysts believe these five stocks are better buys.

View the five stocks here