The impact of the rapidly-spreading coronavirus outbreak has made the equity market extremely volatile. Thus, it seems wise to invest in some promising low-beta stocks that have the potential to hold up better even if the market continues to remain in the bearish territory owing to low market correlation.
Beta Understanding
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 than 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, then the portfolio will definitely lead to 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 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 less than equal to 2: Stocks with aZacks Rank #1 (Strong Buy) or 2 (Buy) indicate that they will outperform the broader U.S. equity market over the next one to three months.
Here are four stocks that qualified the screening:
Headquartered in Oakland, CA, The Clorox Company (CLX - Free Report) is engaged in the production, marketing and sale of consumer products in the U.S. and international markets. The company successfully managed to beat the Zacks Consensus Estimate for earnings in three of the last four quarters, with the average positive surprise being 3.6%. In the next five years, the stock — sporting a Zacks Rank #1 — is likely to see earnings growth of 5.2%.
Sprouts Farmers Market, Inc. (SFM - Free Report) — based in Phoenix, AZ — is among America’s leading providers of organic food products. In 2020, the #1 Ranked stock’s earnings growth is estimated to be 3.2%. The company surpassed the Zacks Consensus Estimate for earnings in three of the last four quarters.
Headquartered in San Diego, CA, WD-40 Company (WDFC - Free Report) is a leading developer of homecare and cleaning products in the domestic market and abroad. In fiscal 2020, the #2 Ranked stock’s earnings growth is projected at 19%.
Unicharm Corporation (UNICY - Free Report) — headquartered in Tokyo, Japan — is a leading manufacturer of baby and childcare products. In the next five years, the stock is likely to see earnings growth of 9%.
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 Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
The impact of the rapidly-spreading coronavirus outbreak has made the equity market extremely volatile. Thus, it seems wise to invest in some promising low-beta stocks that have the potential to hold up better even if the market continues to remain in the bearish territory owing to low market correlation.
Beta Understanding
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 than 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, then the portfolio will definitely lead to 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 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 less than equal to 2: Stocks with aZacks Rank #1 (Strong Buy) or 2 (Buy) indicate that they will outperform the broader U.S. equity market over the next one to three months.
Here are four stocks that qualified the screening:
Headquartered in Oakland, CA, The Clorox Company (CLX - Free Report) is engaged in the production, marketing and sale of consumer products in the U.S. and international markets. The company successfully managed to beat the Zacks Consensus Estimate for earnings in three of the last four quarters, with the average positive surprise being 3.6%. In the next five years, the stock — sporting a Zacks Rank #1 — is likely to see earnings growth of 5.2%.
Sprouts Farmers Market, Inc. (SFM - Free Report) — based in Phoenix, AZ — is among America’s leading providers of organic food products. In 2020, the #1 Ranked stock’s earnings growth is estimated to be 3.2%. The company surpassed the Zacks Consensus Estimate for earnings in three of the last four quarters.
Headquartered in San Diego, CA, WD-40 Company (WDFC - Free Report) is a leading developer of homecare and cleaning products in the domestic market and abroad. In fiscal 2020, the #2 Ranked stock’s earnings growth is projected at 19%.
Unicharm Corporation (UNICY - Free Report) — headquartered in Tokyo, Japan — is a leading manufacturer of baby and childcare products. In the next five years, the stock is likely to see earnings growth of 9%.
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 Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
Get the latest research report on CLX - FREE
Get the latest research report on WDFC - FREE
Get the latest research report on SFM - FREE
Get the latest research report on UNICY - FREE