Back to top

Image: Bigstock

Buy These 4 Low-Beta Stocks to Sail Through a Choppy Market

Read MoreHide Full Article

Inflationary pressure is making shoppers nervous as they are pulling back spending owing to increasing food and fuel prices. To tame inflation, the Fed could hike interest rates by more than what most of the market pundits are expecting. This could lead to a slowdown in the economy, and thus the market could remain choppy.

Hence, creating a portfolio of low-beta stocks is of utmost importance since the securities will deliver healthy returns and provide a shield against volatile market conditions. In this regard, stocks like Otter Tail Corporation (OTTR - Free Report) , Ardmore Shipping Corporation (ASC - Free Report) , Scorpio Tankers Inc. (STNG - Free Report) , Lamb Weston Holdings, Inc. (LW - Free Report) are worth betting on.

Understanding of Beta

Beta measures the volatility or risk of a particular asset compared 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 0.5 as our prime criterion for screening stocks that are less volatile than the market. However, this should not be the only factor to be considered while selecting a winning strategy. We need to take into account other parameters as well 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 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. You can see the complete list of today’s Zacks #1 Rank stocks here.

Here are four stocks among 10 that qualified the screening:

Otter Tail Corporation is a leading player in electric utility and manufacturing businesses. For 2022 and 2023, Otter Tail has witnessed upward earnings estimate revisions over the past 60 days. In order to secure more stable cashflows, Otter Tail is planning to invest in rate base growth opportunities.

Ardmore Shipping’s outlook seems bright since the company has set a core strategy of developing a modern, high-quality fleet of products and chemical tankers. Building up good commercial relationships for the long term is also a strong focus of Ardmore Shipping. For 2022, ASC is likely to see earnings growth of 282%.

Scorpio Tankers is expected to generate significant cashflows since the company is the largest product tanker owner in the world. Scorpio Tankers has a diversified blue-chip customer base, thereby providing services related to marine transportation of refined petroleum products. In 2022, STNG is likely to see earnings growth of 196.6%.

Lamb Weston Holdings is likely to generate stable earnings since it is a well-known name in supplying frozen potato, sweet potato, appetizer and vegetable products to retailers and restaurants across the globe. So far this year, LW has gained 18.5%, outpacing the industry’s decline of 2.6%.

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.