The Hidden Cost of Stability: Three Low-Volatility Stocks That May Hinder Your Portfolio's Growth
In the quest for portfolio stability, low-volatility stocks are often hailed as safe harbors. However, this very stability can be a double-edged sword. Historical data suggests that these stocks, while cushioning against downturns, frequently lag during sustained market rallies, potentially leaving investors with subpar long-term returns.
At StockStory, our analysis separates potential winners from likely laggards. While capital preservation is crucial, outright avoidance of growth can be costly. Below, we highlight three low-volatility stocks that currently give us pause, alongside the rationale for our caution.
Workiva Inc. (NYSE: WK) – The "Excel Killer" Priced for Perfection?
With a rolling one-year beta of just 0.69, Workiva's stock is notably stable. The company's cloud platform has revolutionized financial reporting and compliance, earning it a loyal following among finance professionals. Yet, its current share price of $76.92 reflects a steep forward price-to-sales multiple of 4.5x. In a higher interest rate environment where software valuations are being scrutinized, Workiva's premium pricing may limit its near-term upside, making its low volatility a sign of stalled momentum rather than steady strength.
Hormel Foods Corporation (NYSE: HRL) – A Defensive Staple in a Growth-Oriented Market
Famous for its SPAM brand, Hormel is a classic defensive stock with a beta of only 0.10. Its portfolio of shelf-stable foods provides recession-resistant cash flows. However, this is precisely the problem: at $24.53 per share, Hormel trades at 16.7x forward earnings, a rich valuation for a company in the slow-growth packaged foods sector. With consumer preferences shifting and input costs volatile, HRL's low volatility may simply reflect a lack of catalytic drivers, trapping capital that could be deployed more effectively elsewhere.
Dolby Laboratories, Inc. (NYSE: DLB) – An Iconic Brand Facing Technological Headwinds
Dolby's iconic logo is synonymous with premium audio, and its beta of 0.68 indicates low correlation with market swings. However, trading at $62.73 per share (4.3x forward sales), the stock appears fully valued. The core risk is technological disruption; as entertainment consumption fragments and new audio formats emerge, Dolby's licensing-based model faces incremental challenges. Its low volatility might not signal safety but instead a market consensus that significant growth is unlikely.
Investor Perspectives:
"As a long-term investor, I appreciate the analysis," says Michael Chen, a portfolio manager in Boston. "It reinforces the need to balance defense with offense. Hormel, for instance, has a role in certain income-focused strategies, but it's not a growth engine."
"This is exactly the kind of passive thinking that leads to mediocre returns," argues Sarah J. Vance, a financial advisor known for her contrarian views. "Labeling these as 'stocks to avoid' is overly simplistic. Workiva is transforming a massive market. Low volatility during its execution phase is a feature, not a bug. This analysis misses the forest for the trees."
"I find the Dolby point particularly relevant," adds David Park, a retail investor from Seattle. "It's a brand I trust, but I hadn't considered how streaming and new tech could pressure its business model. It's a good reminder that even 'stable' companies aren't immune to change."
For investors seeking robust growth, our research has identified high-quality companies with a proven track record. Our Top 9 Market-Beating Stocks list, for instance, features names that have collectively returned 244% over the past five years. Past successes include giants like Nvidia and lesser-known stories like Comfort Systems USA, which delivered a 782% five-year return after being a small-cap pick in 2020.
In today's market, true safety isn't just about avoiding downturns—it's about ensuring your capital is positioned to participate meaningfully in upturns. Sometimes, the safest move is to avoid the stocks that are too safe for their own good.