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There is no hard and fast rule that you must always invest in risky stocks for above-market returns. Yes, risky securities always perform better than the market during a bull run. But when the market starts following the bearish path, investors will get much lower returns. Hence, it’s best to build a strategy on low risk assets and a combination of parameters that lead to better returns. The best way to go about doing this is by creating a portfolio of low beta stocks which are less prone to market movements.
What Really Beta Means?
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 12 stocks that qualified the screening:
Coty Inc. (COTY - Free Report) is involved in operations like manufacturing, marketing and distributing beauty products all over the world. For the last four quarters, the company delivered an average positive earnings surprise of 50.03%. Moreover, over the last 30 days, the Zacks Consensus Estimate for fiscal 2017 saw an increase of almost 4%.
The Advisory Board Company is the prime provider of best practices research and analysis mainly to the health care sector. In the last four quarters, the company posted an average positive earnings surprise of 160.61%. On top of that, for 2016, the company’s earnings are projected to grow almost 26% year over year.
Pan American Silver Corp. (PAAS - Free Report) is mainly involved in operations like exploration, development and refining of silver mines. The company reported an average positive earnings surprise of 54.04% over the prior four quarters. For 2016, the company’s earnings are projected to grow 163.2% year over year.
Royal Gold Inc. (RGLD - Free Report) is involved in acquiring and managing precious metals royalties. For fiscal 2017, the company’s year-over-year earnings growth is projected at 78.57%. Moreover, over a period of 30 day, the Zacks Consensus Estimate for fiscal 2017 saw an increase of almost 6%.
Cirrus Logic Inc. (CRUS - Free Report) is the developer, manufacturer and marketer of analog and mixed-signal integrated circuits. Over the last four quarters, the company posted an average positive earnings surprise of 49.62%. For fiscal 2017, the company’s year-over-year earnings growth is projected at 45.2%.
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 Endure a Volatile Market
There is no hard and fast rule that you must always invest in risky stocks for above-market returns. Yes, risky securities always perform better than the market during a bull run. But when the market starts following the bearish path, investors will get much lower returns. Hence, it’s best to build a strategy on low risk assets and a combination of parameters that lead to better returns. The best way to go about doing this is by creating a portfolio of low beta stocks which are less prone to market movements.
What Really Beta Means?
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 12 stocks that qualified the screening:
Coty Inc. (COTY - Free Report) is involved in operations like manufacturing, marketing and distributing beauty products all over the world. For the last four quarters, the company delivered an average positive earnings surprise of 50.03%. Moreover, over the last 30 days, the Zacks Consensus Estimate for fiscal 2017 saw an increase of almost 4%.
The Advisory Board Company is the prime provider of best practices research and analysis mainly to the health care sector. In the last four quarters, the company posted an average positive earnings surprise of 160.61%. On top of that, for 2016, the company’s earnings are projected to grow almost 26% year over year.
Pan American Silver Corp. (PAAS - Free Report) is mainly involved in operations like exploration, development and refining of silver mines. The company reported an average positive earnings surprise of 54.04% over the prior four quarters. For 2016, the company’s earnings are projected to grow 163.2% year over year.
Royal Gold Inc. (RGLD - Free Report) is involved in acquiring and managing precious metals royalties. For fiscal 2017, the company’s year-over-year earnings growth is projected at 78.57%. Moreover, over a period of 30 day, the Zacks Consensus Estimate for fiscal 2017 saw an increase of almost 6%.
Cirrus Logic Inc. (CRUS - Free Report) is the developer, manufacturer and marketer of analog and mixed-signal integrated circuits. Over the last four quarters, the company posted an average positive earnings surprise of 49.62%. For fiscal 2017, the company’s year-over-year earnings growth is projected at 45.2%.
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 »