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Investing in risky stocks for lucrative returns is not a thumb rule. During a bull period, securities with high beta or risks will definitely garner more returns than the market but the reverse is also true when the wind is blowing in the opposite direction.
This article will prove that low beta stocks could be fruitful if we take into account some other parameters.
Understanding 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.
The Winning Strategy
In order to find stocks with lower-than-market volatility, we added beta between 0 and 0.6 as our main criterion for screening. However, we need to keep in mind that low beta is not the only metric to be considered for choosing stocks in a volatile market. Hence to reach the winning strategy, we have considered a few additional criteria.
Percentage Change in Price in the last 4 Weeks: We considered those stocks that saw positive price movement over the last one month.
Average 20 Day Volume greater than or equal to 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. You can see the complete list of today’s Zacks #1 Rank stocks here.
Here are five of the 10 stocks that fit the bill:
Headquartered in Milwaukee, WI The Marcus Corporation (MCS - Free Report) is a lodging and entertainment company in the U.S. The company managed to beat the Zacks Consensus Estimate in the last three quarters with an average positive earnings surprise of 18.36%. For the current quarter, the Zacks Consensus Estimate for earnings has been revised upward over last 30 days.
Ultratech Inc. - headquartered in San Jose, CA – is a developer and marketer photolithography and laser thermal processing equipment. For the current quarter, the Zacks Consensus Estimate for earnings has been revised upward over the last 30 days. On top of that, Ultratech posted an average positive earnings surprise of 62.91% in the last four quarters.
First Financial Northwest Inc. (FFNW - Free Report) – based in Renton, WA – is a provider of commercial banking services in Washington. Over the last four quarters, the company’s average positive earnings surprise came at 5.52%. Moreover, for the current year, First Financial’s earnings are expected to witness year-over-year growth of 39.9%
Independent Bank Corporation (IBCP - Free Report) – based in Grand Rapids, MI – is a leading provider of banking services to customers in Michigan. The company delivered an average positive earnings surprise of 5.31% over the last four quarters. On top of that, for the current year, the company’s earnings will likely experience 12.4% year-over-year growth.
Based in Chicago, IL, Equity Commonwealth (EQC - Free Report) is a publicly owned real estate investment trust. Equity Commonwealth beat the Zacks Consensus Estimate in three of the last four quarters with an average positive earnings surprise of 3.59%.
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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Buy 5-Low Beta Stocks to Combat Market Volatility
Investing in risky stocks for lucrative returns is not a thumb rule. During a bull period, securities with high beta or risks will definitely garner more returns than the market but the reverse is also true when the wind is blowing in the opposite direction.
This article will prove that low beta stocks could be fruitful if we take into account some other parameters.
Understanding 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.
The Winning Strategy
In order to find stocks with lower-than-market volatility, we added beta between 0 and 0.6 as our main criterion for screening. However, we need to keep in mind that low beta is not the only metric to be considered for choosing stocks in a volatile market. Hence to reach the winning strategy, we have considered a few additional criteria.
Percentage Change in Price in the last 4 Weeks: We considered those stocks that saw positive price movement over the last one month.
Average 20 Day Volume greater than or equal to 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. You can see the complete list of today’s Zacks #1 Rank stocks here.
Here are five of the 10 stocks that fit the bill:
Headquartered in Milwaukee, WI The Marcus Corporation (MCS - Free Report) is a lodging and entertainment company in the U.S. The company managed to beat the Zacks Consensus Estimate in the last three quarters with an average positive earnings surprise of 18.36%. For the current quarter, the Zacks Consensus Estimate for earnings has been revised upward over last 30 days.
Ultratech Inc. - headquartered in San Jose, CA – is a developer and marketer photolithography and laser thermal processing equipment. For the current quarter, the Zacks Consensus Estimate for earnings has been revised upward over the last 30 days. On top of that, Ultratech posted an average positive earnings surprise of 62.91% in the last four quarters.
First Financial Northwest Inc. (FFNW - Free Report) – based in Renton, WA – is a provider of commercial banking services in Washington. Over the last four quarters, the company’s average positive earnings surprise came at 5.52%. Moreover, for the current year, First Financial’s earnings are expected to witness year-over-year growth of 39.9%
Independent Bank Corporation (IBCP - Free Report) – based in Grand Rapids, MI – is a leading provider of banking services to customers in Michigan. The company delivered an average positive earnings surprise of 5.31% over the last four quarters. On top of that, for the current year, the company’s earnings will likely experience 12.4% year-over-year growth.
Based in Chicago, IL, Equity Commonwealth (EQC - Free Report) is a publicly owned real estate investment trust. Equity Commonwealth beat the Zacks Consensus Estimate in three of the last four quarters with an average positive earnings surprise of 3.59%.
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 »