3 Low-Volatility Stocks Walking a Fine Line

Stability is great, but low-volatility stocks may struggle to deliver market-beating returns over time as they sometimes underperform during bull markets.

Luckily for you, StockStory helps you navigate which companies are truly worth holding. Keeping that in mind, here are three low-volatility stocks to avoid and some better opportunities instead.

UniFirst (UNF)

Rolling One-Year Beta: 0.55

With a fleet of trucks making weekly deliveries to over 300,000 customer locations, UniFirst (NYSE:UNF) provides, rents, cleans, and maintains workplace uniforms and protective clothing for businesses across various industries.

Why Does UNF Give Us Pause?

1. Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
2. Earnings per share fell by 2.7% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
3. Low returns on capital reflect management’s struggle to allocate funds effectively, and its shrinking returns suggest its past profit sources are losing steam

UniFirst is trading at $183.58 per share, or 22.7x forward P/E. If you’re considering UNF for your portfolio, see our FREE research report to learn more.

The Pennant Group (PNTG)

Rolling One-Year Beta: 0.60

Spun off from The Ensign Group in 2019 to focus on non-skilled nursing healthcare services, Pennant Group (NASDAQ:PNTG) operates home health, hospice, and senior living facilities across 13 western and midwestern states, serving patients of all ages including seniors.

Why Are We Hesitant About PNTG?

1. Revenue base of $748.2 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 5.8 percentage points
3. High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate

At $27.78 per share, The Pennant Group trades at 24.5x forward P/E. Check out our free in-depth research report to learn more about why PNTG doesn’t pass our bar.

Hilltop Holdings (HTH)

Rolling One-Year Beta: 0.58

Transformed from a residential communities business to a financial services powerhouse in 2007, Hilltop Holdings (NYSE:HTH) is a Texas-based financial holding company that provides banking, broker-dealer, and mortgage origination services.

Why Do We Think HTH Will Underperform?

1. Loans are facing end-market challenges during this cycle, as seen in its flat net interest income over the last four years
2. Projected 32 percentage point efficiency ratio increase over the next year signals its day-to-day expenses will rise
3. Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable

Hilltop Holdings’s stock price of $29.42 implies a valuation ratio of 0.8x forward P/B. To fully understand why you should be careful with HTH, check out our full research report (it’s free).

High-Quality Stocks for All Market Conditions

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