3 High Beta Stocks To Outperform A Market Rally

The U.S. stock market continues to climb the wall of worry, despite persistent inflation and heightened geopolitical risks. The SPDR S&P 500 ETF (SPY) has returned 5.3% year-to-date (not including dividends), after a 20%+ return in 2023.

For investors expecting continued gains, selecting high beta stocks with high correlation to the broader index, could generate market outperformance in the months ahead.

These 3 high beta stocks also pay dividends to shareholders, making them more appealing for dividend growth investors.

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Broadcom Inc. (AVGO)

AVGO stock has had a 5-year average beta value of 1.82. This means for every 1% move in the S&P 500 Index, AVGO stock could be expected to return 1.82%. The company is a mega-cap technology stock that designs, develops, and sells semiconductors under the following business units: Wired infrastructure, wireless communication, enterprise storage and industrial.

Its offerings include data center chips, factory automation, energy systems and power generation, broadband access, and home connectivity. Broadcom is a fabless semiconductor company, which means that the products it designs are manufactured by other companies/foundries.

Broadcom reported its first-quarter earnings results on March 7. The company generated revenues of $12.0 billion during the quarter, which represents an increase of 34% compared to the prior year’s quarter. The strong revenue growth performance was driven by AI data center investments by many of Broadcom’s customers.

The company outperformed revenue expectations easily. Broadcom reported earnings-per-share of $10.99 for the fiscal first quarter, which was ahead of the analyst consensus estimate.

Broadcom’s earnings-per-share rose tenfold between 2011 and 2020. This earnings growth was driven by a significant amount of M&A, the most important one being the merger between Broadcom and Avago Technologies. By moving towards acquisitions in the software industry with its CA takeover, Broadcom has found a new way of generating growth.

AVGO stock currently yields 1.6%.

Carrier Global (CARR)

Carrier Global Corp. is an industrials stock that was spun off from Raytheon Technologies in 2020. Carrier operates in three segments: Heating, Ventilating, and Air Conditioning (HVAC); Refrigeration; and Fire & Security, which constituted 54%, 20% and 26% of last year’s sales, respectively. The company generated $20.4 billion in sales last year and has 52,000 employees offering solutions in 160 countries.

CARR stock has had a 5-year average beta value of 1.32.

On December 6th, 2023, Carrier Global raised its dividend by 2.7% to a quarterly rate of $0.19. On February 6th, 2024, Carrier reported Q4 and full-year results for the period ending December 31st, 2023. For the quarter, sales came in at roughly $5.10 billion, flat compared to Q4-2022, as a 1% net positive impact from foreign exchange translation was offset by a 1% negative impact from divestitures.

Global Commercial HVAC experienced high single-digit growth. The Refrigeration segment also rebounded, posting a 6% organic sales increase driven by growth in Transport Refrigeration. For the year, adjusted earnings-per-share advanced to $2.73. For fiscal 2024, management expects sales of $26.5 billion and adjusted EPS to be between $2.80 and $2.90.

Carrier has several long-term growth avenues available including an ongoing need for climate and temperature regulation, a trend towards urbanization, a growing middle class, and increased digitalization. These factors will drive demand for Carrier’s products and should allow the company, which is number one or two in most of its industries, to capture its fair share of a long-term tailwind.

CARR stock currently yields 1.4%.

Estee Lauder Cos. (EL)

EL has a 5-year average beta value of 1.39. Estee Lauder is one of the world’s largest cosmetics and beauty care companies. It competes primarily in the upscale and prestige portion of the market. Sales break down as follows: Skin care makes up 52% of sales, makeup constitutes 28%, fragrance is another 16%, and hair care is the other 4%.

The firm’s leading brands include the namesake Estee Lauder along with Clinique, Aveda, M.A.C., and Origins among others. Revenues are split almost equally in thirds between the Asia-Pacific, Europe Middle East & Africa, and the Americas segments.

The company reported its fiscal Q2 2024 earnings on February 5th, 2024. Earnings per share fell to $0.87 from $1.09 for the same period of last year. Revenues also fell 7% year-over-year to $4.28 billion. However, both of these figures comfortably exceeded analyst expectations. We expect the company will grow earnings at an 8% annualized growth rate over the next five years. The dividend should grow at about the same rate as earnings over time.

EL stock currently yields 1.9% and Estee Lauder has averaged a 45% payout ratio since 2014. It remains around there, based on normalized earnings, and we expect the payout ratio to remain around that level long-term. The company has a strong credit rating, with an “A” credit rating from S&P Global, and holds minimal net debt.

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