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There is a saying that "If you don’t take risk, you can’t create a future." Yes, investing in risky stocks reaps huge returns once the market goes up. But we should also keep in mind the opposite scenario. Hence, it will be wise if investors include low risk stocks in their portfolio. Such a portfolio could be created easily based on the low beta strategy which selects stocks less prone to risks than the market.
Meaning of Beta
Beta measures the volatility or risk of a particular asset in comparison to the market. In other words, beta measures the extent of a security’s price movement relative to the market. In this article, we are considering the S&P 500 as the market.
If a stock has beta of 1 then the price of the stock will move with the market. So the stock is more volatile than the market if its beta is more than 1. In the same way, the stock is not as volatile as the market if its beta is less than 1.
For example, if the market offers a return of 20%, a stock with beta of 3 will return 60%, which is overwhelming. Similarly, when the market slips 20% the stock will sink 60%, which is devastating.
Screening Criteria
We have taken beta between 0 and 0.6 as our prime criterion for screening stocks that are less volatile than the market. But this should not be the only factor to be considered while selecting a winning strategy. We need to take into account other parameters that can add value to the portfolio.
Percentage Change in Price in the Last 4 Weeks greater than zero: This ensures that the stocks saw positive price movement over the last one month.
Average 20 Day Volume greater than 50,000: A substantial trading volume ensures that the stocks are easily tradable.
Price greater than or equal to $5: They must all be trading at a minimum of $5 or higher.
Zacks Rank equal to 1: Zacks Rank #1 (Strong Buy) stocks indicate that they will significantly outperform the broader U.S. equity market over the next one to three months.
Here are five of the 17 stocks that qualified the screening:
Fresh Del Monte Produce Inc. (FDP - Free Report) is the leading producer and distributer of fresh and fresh cut fruits and vegetables all over the world. Over the last 60 days, the Zacks Consensus Estimate for the company’s full-year 2016 earnings increased 30.6%. Moreover, for 2016, Fresh Del Monte’s earnings are projected to improve 47.4% year over year.
Post Holdings Inc. (POST - Free Report) is primarily involved in businesses like manufacturing and marketing of ready-to-eat cereals mainly in the U.S. and Canada. Over the last 60 days, the Zacks Consensus Estimate for fiscal 2016 earnings saw an increase of 41.3%. On top of that, the company has surpassed the Zacks Consensus Estimate in three of the last four quarters with a positive average surprise of 345.14%.
Bristol-Myers Squibb Company (BMY - Free Report) is a global specialty biopharmaceutical company with focus on discovering, developing and delivering innovative treatment for serious diseases. The company’s year-over-year projected earnings growth rate for 2016 is 29.5%. Investors should remember that Bristol-Myers surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 27.67%.
Southern National Bancorp of Virginia Inc. is the prime provider of services like commercial banking to retail customers along with middle market corporate clients in the U.S. It is to be noted that the company posted an average earnings beat of 13.52% for the last four quarters. The firm’s projected earnings growth for this year is 9.3% year over year.
Apple Hospitality REIT Inc. (APLE - Free Report) is a publicly traded real estate investment trust. The portfolio of the company that operates in the U.S. includes guest rooms, resorts and hotels. Over the last 60 days, the Zacks Consensus Estimate for 2016 saw an increase as all the estimates were revised upward. Moreover, for this year, the company’s earnings are expected to grow almost 12% over the prior year.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
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5 Low Beta Stocks to Withstand Market Volatility
There is a saying that "If you don’t take risk, you can’t create a future." Yes, investing in risky stocks reaps huge returns once the market goes up. But we should also keep in mind the opposite scenario. Hence, it will be wise if investors include low risk stocks in their portfolio. Such a portfolio could be created easily based on the low beta strategy which selects stocks less prone to risks than the market.
Meaning of Beta
Beta measures the volatility or risk of a particular asset in comparison to the market. In other words, beta measures the extent of a security’s price movement relative to the market. In this article, we are considering the S&P 500 as the market.
If a stock has beta of 1 then the price of the stock will move with the market. So the stock is more volatile than the market if its beta is more than 1. In the same way, the stock is not as volatile as the market if its beta is less than 1.
For example, if the market offers a return of 20%, a stock with beta of 3 will return 60%, which is overwhelming. Similarly, when the market slips 20% the stock will sink 60%, which is devastating.
Screening Criteria
We have taken beta between 0 and 0.6 as our prime criterion for screening stocks that are less volatile than the market. But this should not be the only factor to be considered while selecting a winning strategy. We need to take into account other parameters that can add value to the portfolio.
Percentage Change in Price in the Last 4 Weeks greater than zero: This ensures that the stocks saw positive price movement over the last one month.
Average 20 Day Volume greater than 50,000: A substantial trading volume ensures that the stocks are easily tradable.
Price greater than or equal to $5: They must all be trading at a minimum of $5 or higher.
Zacks Rank equal to 1: Zacks Rank #1 (Strong Buy) stocks indicate that they will significantly outperform the broader U.S. equity market over the next one to three months.
Here are five of the 17 stocks that qualified the screening:
Fresh Del Monte Produce Inc. (FDP - Free Report) is the leading producer and distributer of fresh and fresh cut fruits and vegetables all over the world. Over the last 60 days, the Zacks Consensus Estimate for the company’s full-year 2016 earnings increased 30.6%. Moreover, for 2016, Fresh Del Monte’s earnings are projected to improve 47.4% year over year.
Post Holdings Inc. (POST - Free Report) is primarily involved in businesses like manufacturing and marketing of ready-to-eat cereals mainly in the U.S. and Canada. Over the last 60 days, the Zacks Consensus Estimate for fiscal 2016 earnings saw an increase of 41.3%. On top of that, the company has surpassed the Zacks Consensus Estimate in three of the last four quarters with a positive average surprise of 345.14%.
Bristol-Myers Squibb Company (BMY - Free Report) is a global specialty biopharmaceutical company with focus on discovering, developing and delivering innovative treatment for serious diseases. The company’s year-over-year projected earnings growth rate for 2016 is 29.5%. Investors should remember that Bristol-Myers surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 27.67%.
Southern National Bancorp of Virginia Inc. is the prime provider of services like commercial banking to retail customers along with middle market corporate clients in the U.S. It is to be noted that the company posted an average earnings beat of 13.52% for the last four quarters. The firm’s projected earnings growth for this year is 9.3% year over year.
Apple Hospitality REIT Inc. (APLE - Free Report) is a publicly traded real estate investment trust. The portfolio of the company that operates in the U.S. includes guest rooms, resorts and hotels. Over the last 60 days, the Zacks Consensus Estimate for 2016 saw an increase as all the estimates were revised upward. Moreover, for this year, the company’s earnings are expected to grow almost 12% over the prior year.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance/.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »