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Top 5 Low Beta Stocks to Sail through a Volatile Market
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Following an unprecedented stretch of calm during the summer, equities see-sawed over the past three trading days. Investors remain on the edge as Fed officials differ on rate hike expectations, while oil joins the rout on weak demand growth.
To top it, developments like discouraging corporate earnings, stretched valuations and presidential elections are expected to keep markets choppy. Hence, in order to sidestep such bumpy proceedings, invest in stocks that are less volatile than the broader markets.
Volatility is Back
For 43 successive trading sessions this summer, stocks barely budged. Such a streak, however, came to an end on Sep 9 when the stock market dropped significantly, only to bounce back on Sep 12. The CBOE Volatility Index (VIX) shot up to an average of 16.4 over those two days, which was otherwise hovering at around 12 for a sustained period. The Fed’s ambiguous stance regarding monetary tightening measures resulted in such gyrations.
In fact, Wall Street’s “fear gauge” index moved north yesterday as U.S. equities logged a second sharp sell-off in the past three trading sessions. This time, the reason was the slide in crude prices on concerns of waning oil demand. The VIX rose 18% to close at 17.85, implying that investors foresee a further downward swings in the stock market.
Let us look at the major factors that fueled the market mayhem:
Rate Hike Dilemma
Rate hike indecision is creating widespread volatility in the broader markets. While hawkish comments from Boston Fed President Eric Rosengren slammed equity markets last Friday, a dovish stance by Fed Governor Lael Brainard helped major indices close over 1% higher on Monday.
Rosengren cautioned that waiting too long for a rate hike might adversely affect some asset markets like commercial real estate. But, Brainard said that it would be wise for the Fed to keep the monetary policy loose. Muted inflation and uncertain global developments has raised caution against hiking rates too fast. Two other officials including Atlanta Fed President Dennis Lockhart and Minneapolis Fed President Neel Kashkari also said that the Fed shouldn’t be in a hurry to raise rates.
Oil Prices Nosedive
Spell of volatility extended yesterday, thanks to slump in oil prices. Slowdown in global oil demand growth weighed on oil prices. According to the International Energy Agency (IEA), demand for global oil sank to 800,000 barrels per day (bpd) in the third quarter of this year, a 1.5 million bpd lower compared to same period last year. IEA also trimmed its 2016 demand growth forecast by 100,000 bpd to 1.3 million bpd.
The IEA said that demand growth has very nearly vanished in developed countries, while it slowed down drastically in Asian powerhouses such as China and India. The IEA added that weak economic growth and heavy flooding in China dented use of oil in the industries. IEA also cited that demand for oil in Europe has gone down. On Tuesday, WTI and Brent crude fell 3.1% and 2.6% to $44.90 per barrel and $47.10 a barrel, respectively.
More Turbulence Ahead
Volatility might go up further as profit expectations for this year will be trimmed in the wake of a discouraging third-quarter earnings season. As of Sep 9, third-quarter earnings are expected to decline 3% compared to the same period last year (read more: Looking Ahead to the Q3 Earnings Season).
Moreover, stocks are pretty pricey this time around which makes us believe that the market may be facing a correction sooner than later. The broader market is trading at 17.5x the 2017 consensus projection of $125 EPS (read more: How Overvalued Are Stocks?).
Beat Market Volatility with These 5 Low Beta Stocks
Along with such uncertain circumstances, we shouldn’t forget that the stock market has entered the worst month this year, as far as historical data is considered, with both the S&P 500 and the Dow typically closing in the negative (read more: 5 Best Stocks to Buy for a Dreadful September).
Hence, investors should 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 inherently less volatile than the markets they trade in. In this case, a low beta ranges from 0 to 1.
We have selected five low beta stocks that boast a Zacks Rank #1 (Strong Buy). The search was also narrowed down with a VGM score of ‘A’. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Cooper-Standard Holdings Inc. (CPS - Free Report) manufactures and sells sealing, fuel and brake delivery, fluid transfer, and anti-vibration systems. The company has a beta of 0.62, while its expected earnings growth rate for this year is 10.6%. Cooper-Standard Holdings’earnings estimates have risen from $9.27/share two months ago to $10.13/share today.
Central Garden & Pet Company (CENT - Free Report) produces and markets products for the pet, and lawn and garden supplies industries. The company has a beta of 0.75, while its expected earnings growth rate for this year is 61.7%. Central Garden & Pet Company’s earnings estimates have risen from $1.13/share two months ago to $1.2/share today.
Cirrus Logic Inc. (CRUS - Free Report) develops, manufactures, and markets analog and mixed-signal integrated circuits. The company has a beta of 0.44, while its expected earnings growth rate for this year is 45.2%. Cirrus Logic’s earnings estimate has risen from $2.57/share two months ago to $2.89/share today.
Superior Industries International, Inc. (SUP - Free Report) designs, manufactures and sells aluminum wheels. The company has a beta of 0.94, while its expected earnings growth rate for this year is 101.6%. Superior Industries International’s earnings estimate has risen from $1.82/share two months ago to $2.04/share today.
Innophos Holdings Inc is a producer of nutritional specialty ingredients. The company has a beta of 0.77, while its expected earnings growth rate for this year is 48.6%. Innophos Holdings’ earnings estimates have risen from $2.45/share two months ago to $2.6/share today. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Where Do Zacks' Investment Ideas Come From?
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buy"" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 ""Strong Sells"" and other private research. See the stocks free >>
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Top 5 Low Beta Stocks to Sail through a Volatile Market
Following an unprecedented stretch of calm during the summer, equities see-sawed over the past three trading days. Investors remain on the edge as Fed officials differ on rate hike expectations, while oil joins the rout on weak demand growth.
To top it, developments like discouraging corporate earnings, stretched valuations and presidential elections are expected to keep markets choppy. Hence, in order to sidestep such bumpy proceedings, invest in stocks that are less volatile than the broader markets.
Volatility is Back
For 43 successive trading sessions this summer, stocks barely budged. Such a streak, however, came to an end on Sep 9 when the stock market dropped significantly, only to bounce back on Sep 12. The CBOE Volatility Index (VIX) shot up to an average of 16.4 over those two days, which was otherwise hovering at around 12 for a sustained period. The Fed’s ambiguous stance regarding monetary tightening measures resulted in such gyrations.
In fact, Wall Street’s “fear gauge” index moved north yesterday as U.S. equities logged a second sharp sell-off in the past three trading sessions. This time, the reason was the slide in crude prices on concerns of waning oil demand. The VIX rose 18% to close at 17.85, implying that investors foresee a further downward swings in the stock market.
Let us look at the major factors that fueled the market mayhem:
Rate Hike Dilemma
Rate hike indecision is creating widespread volatility in the broader markets. While hawkish comments from Boston Fed President Eric Rosengren slammed equity markets last Friday, a dovish stance by Fed Governor Lael Brainard helped major indices close over 1% higher on Monday.
Rosengren cautioned that waiting too long for a rate hike might adversely affect some asset markets like commercial real estate. But, Brainard said that it would be wise for the Fed to keep the monetary policy loose. Muted inflation and uncertain global developments has raised caution against hiking rates too fast. Two other officials including Atlanta Fed President Dennis Lockhart and Minneapolis Fed President Neel Kashkari also said that the Fed shouldn’t be in a hurry to raise rates.
Oil Prices Nosedive
Spell of volatility extended yesterday, thanks to slump in oil prices. Slowdown in global oil demand growth weighed on oil prices. According to the International Energy Agency (IEA), demand for global oil sank to 800,000 barrels per day (bpd) in the third quarter of this year, a 1.5 million bpd lower compared to same period last year. IEA also trimmed its 2016 demand growth forecast by 100,000 bpd to 1.3 million bpd.
The IEA said that demand growth has very nearly vanished in developed countries, while it slowed down drastically in Asian powerhouses such as China and India. The IEA added that weak economic growth and heavy flooding in China dented use of oil in the industries. IEA also cited that demand for oil in Europe has gone down. On Tuesday, WTI and Brent crude fell 3.1% and 2.6% to $44.90 per barrel and $47.10 a barrel, respectively.
More Turbulence Ahead
Volatility might go up further as profit expectations for this year will be trimmed in the wake of a discouraging third-quarter earnings season. As of Sep 9, third-quarter earnings are expected to decline 3% compared to the same period last year (read more: Looking Ahead to the Q3 Earnings Season).
Moreover, stocks are pretty pricey this time around which makes us believe that the market may be facing a correction sooner than later. The broader market is trading at 17.5x the 2017 consensus projection of $125 EPS (read more: How Overvalued Are Stocks?).
Uncertainty over the impending presidential elections may also lead to a correction in the near term (read more: Here's How Presidents and Elections Affect the Stock Market).
Beat Market Volatility with These 5 Low Beta Stocks
Along with such uncertain circumstances, we shouldn’t forget that the stock market has entered the worst month this year, as far as historical data is considered, with both the S&P 500 and the Dow typically closing in the negative (read more: 5 Best Stocks to Buy for a Dreadful September).
Hence, investors should 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 inherently less volatile than the markets they trade in. In this case, a low beta ranges from 0 to 1.
We have selected five low beta stocks that boast a Zacks Rank #1 (Strong Buy). The search was also narrowed down with a VGM score of ‘A’. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Cooper-Standard Holdings Inc. (CPS - Free Report) manufactures and sells sealing, fuel and brake delivery, fluid transfer, and anti-vibration systems. The company has a beta of 0.62, while its expected earnings growth rate for this year is 10.6%. Cooper-Standard Holdings’earnings estimates have risen from $9.27/share two months ago to $10.13/share today.
Central Garden & Pet Company (CENT - Free Report) produces and markets products for the pet, and lawn and garden supplies industries. The company has a beta of 0.75, while its expected earnings growth rate for this year is 61.7%. Central Garden & Pet Company’s earnings estimates have risen from $1.13/share two months ago to $1.2/share today.
Cirrus Logic Inc. (CRUS - Free Report) develops, manufactures, and markets analog and mixed-signal integrated circuits. The company has a beta of 0.44, while its expected earnings growth rate for this year is 45.2%. Cirrus Logic’s earnings estimate has risen from $2.57/share two months ago to $2.89/share today.
Superior Industries International, Inc. (SUP - Free Report) designs, manufactures and sells aluminum wheels. The company has a beta of 0.94, while its expected earnings growth rate for this year is 101.6%. Superior Industries International’s earnings estimate has risen from $1.82/share two months ago to $2.04/share today.
Innophos Holdings Inc is a producer of nutritional specialty ingredients. The company has a beta of 0.77, while its expected earnings growth rate for this year is 48.6%. Innophos Holdings’ earnings estimates have risen from $2.45/share two months ago to $2.6/share today. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Where Do Zacks' Investment Ideas Come From?
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buy"" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 ""Strong Sells"" and other private research. See the stocks free >>