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Periods of high volatility in the stock market can make for stressful days for investors. This is particularly true if I own high growth stocks or penny stocks. Both are known to have wild stock price moves, both up and down. There is nothing wrong with owning those types of stocks, but I am considering adding a couple of FTSE 100 Index I add stocks to my balanced portfolio to reduce fluctuations in their value.
There are different ways to define low volatility. I decided to look at the difference between the highest and lowest price of a stock over the last year. Across the range of FTSE 100 stocks I calculated, the average high and low was around 40%.
A veteran of the market
Below this mark, with 23%, is Bunzl (LSE:BNZL). The distribution and outsourcing business may have enjoyed a narrow share price range over the year, but it is still up 15% over this period. This tells me that it has been trending higher, but in a controlled manner.
Part of the reason I think this is a low volatility stock is due to the size and nature of its operations. Technically, the company can be traced back to 1854. While it has gone through natural swings in demand over the past few decades, it has proven to be a well-run and profitable company. As such, it doesn't have large swings in share price like a younger startup would experience.
Although the company is mature, it still generates healthy profits. Last year, pre-tax profit was £698.6m, compared to £634.6m the year before. So if this trend continues, I think it is a great stock to get long-term returns without sudden movements.
As a risk, earlier this year there was a warning of lower demand for North American operations. I need to monitor this closely to ensure that it does not become a bigger problem.
The sign points north
Another stock with a 25% gain over the past year is Compass Group (LSE:CPG) last month saw new highs and the share price is up 17% over the past year.
The share price increase at the end of July was due to better-than-expected quarterly results. The company reported revenue growth of 10.3% compared to the same period last year.
The catering and hospitality services provider said this was not due to large one-off deals, but rather to the growth of new business. This is excellent and bodes well for the rest of the year.
Of course, sudden increases in stock prices increase volatility, which is what I am trying to avoid here. However, a sanity check is in order. After all, if volatility is based on a sudden increase in stock prices, it is not as worrying as if it were caused by sharp downward movements.
One concern is the impact of exchange rates on the business. The company recently said that current exchange rates would mean a negative impact of £83m on revenue this year.
Overall, I'm thinking of adding both stocks to my portfolio to help balance out other riskier stocks I own.
