These low-volatility fortresses can defend your portfolio and grow

Tuesday’s inflation data sent the broader market reeling, making stable stocks more attractive for investors worried about further losses.

January’s consumer price index print came in stronger than economists forecast, raising concern that the Federal Reserve will not be able to cut interest rates as much as previously expected. The major stock averages fell sharply on the back of the report, while Treasury yields jumped to levels not seen in months.

As the new data casts uncertainty over market expectations around monetary policy, some are wondering what to do if this marks the start of an equity pullback after a strong start to the new year. Prior to Tuesday’s session, the S&P 500 was up more than 5% year to date.

Due to this, CNBC Pro screened for low-volatility, fortress-like names that can perform well if the drawdown continues. To find these names, we looked for the following qualities using our screener tool available to subscribers:

1. Steady: Stocks that have beta below 0.9.
2. Strong returns even with the steadiness: Share prices have gained at least 10% over the past year.
3. Resilient revenue: Annual sales growth of at least 4% over the past five years.
4. Low debt: Debt-to-equity ratio is under 40%, meaning they have strong balance sheets and aren’t as affected by rate spikes.

Here are the names that made the list:

Class B shares of Berkshire Hathaway made the list. Despite Tuesday’s slide, the stock still traded near all-time highs.

The Warren Buffett-led conglomerate has climbed more than 10% this year, outperforming the S&P 500. Wall Street sees more upside ahead. While just two out of every five analysts surveyed by FactSet have a buy rating on the stock, the average price target suggests it can advance another 6.6%.

Berkshire Hathaway has also been floated as a replacement for Tesla in the “Magnificent Seven,” a group of megacap stocks that have made outsize contributions to the market’s rally over the past several months.

Costco also made the cut. The wholesaler’s stock is up more than 9% year to date.

Last week, Costco announced Chief Financial Officer Richard Galanti would step down in mid-March. He will be succeeded by Kroger CFO Gary Millerchip, a move Goldman Sachs analyst Kate McShane deemed significant given it’s Costco’s first external hire for CEO or finance chief.

“We see a new external hire possibly bringing in ideas based on previous experience which could include a focus on building out the company’s digital, media and/or fulfillment businesses,” McShane wrote to clients. “While this conclusion might appear to be a big leap given Costco’s ecommerce business is still relatively small as a percentage of sales, we think the build out of these alternative businesses could be the way of the future for those selling grocery.”

She pointed to growth of a media business as something that could help Costco win market share and create a better margin profile.

While more than three out of every five analysts polled by FactSet have a buy rating on the stock, the typical price target reflects shares pulling back by 1.5%.

Microsoft was the sole Big Tech stock that passed the screen. Shares of the software giant have added more than 8% in 2024, extending gains after soaring nearly 57% last year. At one point this year, Microsoft was the most valuable company in the world by market capitalization.

Last week, Melius Research analyst Ben Reitzes said the stock appears cheaper than investors might think because its earnings per share are adjusted for GAAP. Despite artificial intelligence tailwinds, the company issued light guidance late last month.

“There’s another reason to like Microsoft, so excuse us for pointing out something obvious if you are into reading earnings footnotes,” he told clients. “While Microsoft continues to set itself apart from those in the Magnificent 7 as it grows AI revenues and expands margins at the same time, it’s beating numbers despite absorbing non-cash charges.”

More than 95% of analysts hold a buy rating on the stock, according to FactSet. The average price target reflects the likelihood for more rallying ahead with an upside of nearly 15%.