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There is a saying “Today's Pain is Tomorrow's Gain”. The investment world believes that to get lucrative returns in the coming days we need to bet on risky stocks. Yes, the strategy works most of the time when the market is bullish. But the scenario is just the reverse when the business environment is bearish.
In this article we have proved that the above strategy is not the thumb rule as other strategies can be built up with intense research. We have created a strategy that shows how low risky securities can also deliver attractive returns if some other parameters are considered.
What is Beta?
Beta indicates the volatility of a particular stock with respect to the market. In other words, beta measures the extent of stock price movement relative to the market (we are considering S&P 500 here).
If a company has a beta of 1, it means that the relative volatility of the stock is the same as that of the S&P 500. In the same way, if the stock’s beta is greater than 1 then it is more volatile compared to the market. Conversely, a beta below 1 signifies less volatility.
Now, if a portfolio’s beta is 3, it is three times more volatile than the market. Hence, if the market is projected to give 20% return, the portfolio will then definitely contribute 60% return which is amazing.
However, the opposite case also holds true. If the market slips 20% then the portfolio return plummets 60% which is surely a matter of concern.
The Winning Strategy
In our screening criteria we included beta in the range of 0 to 0.6 for short listing low risk stocks. But this can’t be the only criterion for betting on stocks. The other parameters that need to be added to create a winning portfolio are:
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 14 stocks that qualified the screening:
Guess', Inc. (GES - Free Report) – headquartered in Los Angeles, CA – is the designer and distributor of lifestyle collections of casual apparel and associated products for men, women and children. The company managed to beat the Zacks Consensus Estimate in two of the last four quarters with an average positive earnings surprise of 33.03%. For fiscal 2018, the Zacks Consensus Estimate has been revised upward over the last 60 days.
Based in Hartford, CT Aetna Inc. is among the largest health benefits’ firms in the U.S. The company surpassed the Zacks Consensus Estimate each of the prior four quarters with an average positive earnings surprise of 8.62%. During 2017, Aetna will likely witness more than 9% year-over-year earnings growth.
Tivity Health, Inc. – headquartered in Franklin, TN – is the provider of services related to health management in the U.S. The company beat the Zacks Consensus Estimate in three of the prior four quarters with an average positive earnings surprise of 1,322.38%. On top of that, the company will likely witness year-over-year revenue growth of 10.4% in the current quarter.
Headquartered in Lausanne, Switzerland,Logitech International S.A. (LOGI - Free Report) is the manufacturer of innovative peripherals that helps people to get connected to the digital platforms. Logitech International surpassed the Zacks Consensus Estimate in all the prior four quarters and posted an average positive earnings surprise of 94.10%. Also, for fiscal year 2018, the company’s earnings is expected to grow 5.6%.
ARI Network Services, Inc. (ARIS - Free Report) — headquartered in Milwaukee, WI — is the provider of software-as-a-service (SaaS) and data-as-a-service (DaaS) solutions to the dealers. The company delivered an average positive earnings surprise of 33.34% in the prior four quarters.
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 Offset Market Volatility
There is a saying “Today's Pain is Tomorrow's Gain”. The investment world believes that to get lucrative returns in the coming days we need to bet on risky stocks. Yes, the strategy works most of the time when the market is bullish. But the scenario is just the reverse when the business environment is bearish.
In this article we have proved that the above strategy is not the thumb rule as other strategies can be built up with intense research. We have created a strategy that shows how low risky securities can also deliver attractive returns if some other parameters are considered.
What is Beta?
Beta indicates the volatility of a particular stock with respect to the market. In other words, beta measures the extent of stock price movement relative to the market (we are considering S&P 500 here).
If a company has a beta of 1, it means that the relative volatility of the stock is the same as that of the S&P 500. In the same way, if the stock’s beta is greater than 1 then it is more volatile compared to the market. Conversely, a beta below 1 signifies less volatility.
Now, if a portfolio’s beta is 3, it is three times more volatile than the market. Hence, if the market is projected to give 20% return, the portfolio will then definitely contribute 60% return which is amazing.
However, the opposite case also holds true. If the market slips 20% then the portfolio return plummets 60% which is surely a matter of concern.
The Winning Strategy
In our screening criteria we included beta in the range of 0 to 0.6 for short listing low risk stocks. But this can’t be the only criterion for betting on stocks. The other parameters that need to be added to create a winning portfolio are:
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 14 stocks that qualified the screening:
Guess', Inc. (GES - Free Report) – headquartered in Los Angeles, CA – is the designer and distributor of lifestyle collections of casual apparel and associated products for men, women and children. The company managed to beat the Zacks Consensus Estimate in two of the last four quarters with an average positive earnings surprise of 33.03%. For fiscal 2018, the Zacks Consensus Estimate has been revised upward over the last 60 days.
Based in Hartford, CT Aetna Inc. is among the largest health benefits’ firms in the U.S. The company surpassed the Zacks Consensus Estimate each of the prior four quarters with an average positive earnings surprise of 8.62%. During 2017, Aetna will likely witness more than 9% year-over-year earnings growth.
Tivity Health, Inc. – headquartered in Franklin, TN – is the provider of services related to health management in the U.S. The company beat the Zacks Consensus Estimate in three of the prior four quarters with an average positive earnings surprise of 1,322.38%. On top of that, the company will likely witness year-over-year revenue growth of 10.4% in the current quarter.
Headquartered in Lausanne, Switzerland,Logitech International S.A. (LOGI - Free Report) is the manufacturer of innovative peripherals that helps people to get connected to the digital platforms. Logitech International surpassed the Zacks Consensus Estimate in all the prior four quarters and posted an average positive earnings surprise of 94.10%. Also, for fiscal year 2018, the company’s earnings is expected to grow 5.6%.
ARI Network Services, Inc. (ARIS - Free Report) — headquartered in Milwaukee, WI — is the provider of software-as-a-service (SaaS) and data-as-a-service (DaaS) solutions to the dealers. The company delivered an average positive earnings surprise of 33.34% in the prior four quarters.
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 »