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For investors looking to cut their portfolio risk, low beat stocks are great. A lower level of market exposure means that losses will be minimized in case of a downturn. This is why an investor with a long-term horizon prefers to invest in stocks carrying lower risks. One of the most popular metrics used to measure such risk is beta.
Understanding 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 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: Whether good market conditions or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of success.
Here are five of the 11 stocks that qualified the screening:
B&G Foods Inc. (BGS - Free Report) is involved in manufacturing and distributing frozen and shelf-stable foods along with household products across U.S., Canada and Puerto Rico. The company has surpassed the Zacks Consensus Estimate in three of the last four quarters with a positive average surprise of 5.67%. For 2016, B&G Foods’ earnings are projected to improve 38.8% year over year.
The J. M. Smucker Company (SJM - Free Report) is a leading marketer and manufacturer of consumer food and beverage products and pet food and pet snacks in North America. J. M. Smucker has surpassed Zacks Consensus Estimate in all the last four quarters with an average earnings beat of 19.93%. For the coming quarter, the company’s earnings are expected to grow 29% over the prior-year quarter.
Bristol-Myers Squibb Company (BMY - Free Report) is a global specialty biopharmaceutical company with focus on discovering, developing and delivering innovative treatments for serious diseases. It is to be noted that the company surpassed expectations in each the last four quarters with an average positive earnings surprise of 27.67%. Bristol-Myers’ projected earnings growth for this year is impressive at 29.5% year over year.
Pretium Resources Inc. is involved in the exploitation and development of precious metal resources – that include gold, silver, and copper deposits – in the U.S. The company posted a positive average earnings surprise of 35.42% for the last four quarters.
FTI Consulting Inc. (FCN - Free Report) provides specialized consulting services across 26 foreign countries with a total headcount of more than 4,200 employees. In three of the last four quarters, the company posted positive earnings surprises with an average beat of 30.96%. Moreover, the company’s year-over-year projected earnings growth rate for 2016 is 27.7%.
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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Combat Volatility with These 5 Low Beta Stocks
For investors looking to cut their portfolio risk, low beat stocks are great. A lower level of market exposure means that losses will be minimized in case of a downturn. This is why an investor with a long-term horizon prefers to invest in stocks carrying lower risks. One of the most popular metrics used to measure such risk is beta.
Understanding 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 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: Whether good market conditions or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of success.
Here are five of the 11 stocks that qualified the screening:
B&G Foods Inc. (BGS - Free Report) is involved in manufacturing and distributing frozen and shelf-stable foods along with household products across U.S., Canada and Puerto Rico. The company has surpassed the Zacks Consensus Estimate in three of the last four quarters with a positive average surprise of 5.67%. For 2016, B&G Foods’ earnings are projected to improve 38.8% year over year.
The J. M. Smucker Company (SJM - Free Report) is a leading marketer and manufacturer of consumer food and beverage products and pet food and pet snacks in North America. J. M. Smucker has surpassed Zacks Consensus Estimate in all the last four quarters with an average earnings beat of 19.93%. For the coming quarter, the company’s earnings are expected to grow 29% over the prior-year quarter.
Bristol-Myers Squibb Company (BMY - Free Report) is a global specialty biopharmaceutical company with focus on discovering, developing and delivering innovative treatments for serious diseases. It is to be noted that the company surpassed expectations in each the last four quarters with an average positive earnings surprise of 27.67%. Bristol-Myers’ projected earnings growth for this year is impressive at 29.5% year over year.
Pretium Resources Inc. is involved in the exploitation and development of precious metal resources – that include gold, silver, and copper deposits – in the U.S. The company posted a positive average earnings surprise of 35.42% for the last four quarters.
FTI Consulting Inc. (FCN - Free Report) provides specialized consulting services across 26 foreign countries with a total headcount of more than 4,200 employees. In three of the last four quarters, the company posted positive earnings surprises with an average beat of 30.96%. Moreover, the company’s year-over-year projected earnings growth rate for 2016 is 27.7%.
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 »