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Endure Market Volatility with These 5 Low-Beta Stocks
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Investors generally pick risky stocks when they seek high returns. This strategy is good when markets walk on the bullish path. But walking alongside the market is not always a wise decision, especially during a downtrend. So, the best way is to create a portfolio with low beta stocks as these securities are less prone to market movements.
Concept of Beta
Beta measures the volatility or risks to a security relative to the market (we are considering the S&P 500 here). That is, beta measures the extent to which the price of a stock moves with respect to the market.
If beta is equal to 1 it means that the stock is as volatile as the market. So, a stock is relatively more volatile if it has beta greater than 1 and less volatile if beta is less than 1.
For example, if the beta is 1.8 then the stock will witness 80% more movement than the market. Hence, we can say that if the market goes up, the stock will outperform by 80%. Conversely, if the market plunges, the stock will lose much more value than the market.
Building a Low-Risk Portfolio
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 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.
Here are five of the 23 stocks that fit the bill:
Dean Foods Company is a leading processor and distributor of milk and other dairy products in the U.S. as well as a leading manufacturer of various specialty food products. The company surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 17.81%. For 2016, the company’s earnings are expected to grow almost 25% over the prior 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. The company surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average positive earnings surprise of 19.93%. For fiscal 2017, the company’s earnings are expected to grow more than 17%. Moreover, over the last 60 days, the Zacks Consensus Estimate for the fiscal first quarter saw an increase of more than 13%.
Randgold Resources Limited (GOLD - Free Report) is involved in the exploration and development of gold deposit in the Sub-Saharan Africa region. In the last four quarters, the company posted an average positive earnings surprise of 0.25%. Most importantly, for 2016, the company’s earnings are expected to grow almost 60% over the prior year.
ARI Network Services Inc. (ARIS - Free Report) is the provider of software-as-a-service, data-as-a-service, and other related solutions to customers like dealers, distributors and equipment manufacturers. ARI Network posted average positive earnings surprise of 4.17% for the last four quarters. For fiscal 2016, the company is projected to post year-over-year earnings growth of 17.6%.
MarketAxess Holdings Inc. (MKTX - Free Report) is a leading multi-dealer trading platform that offers institutional investors access to global liquidity in products like U.S. high-grade corporate bonds, emerging markets and high-yield bonds, European bonds, U.S. agency bonds, credit derivatives and other fixed-income securities. Over the last 60 days, the Zacks Consensus Estimate for second-quarter earnings saw an increase of almost 4%. On top of that, for 2016, MarketAxess’ earnings are projected to improve almost 23% year over year.
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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Endure Market Volatility with These 5 Low-Beta Stocks
Investors generally pick risky stocks when they seek high returns. This strategy is good when markets walk on the bullish path. But walking alongside the market is not always a wise decision, especially during a downtrend. So, the best way is to create a portfolio with low beta stocks as these securities are less prone to market movements.
Concept of Beta
Beta measures the volatility or risks to a security relative to the market (we are considering the S&P 500 here). That is, beta measures the extent to which the price of a stock moves with respect to the market.
If beta is equal to 1 it means that the stock is as volatile as the market. So, a stock is relatively more volatile if it has beta greater than 1 and less volatile if beta is less than 1.
For example, if the beta is 1.8 then the stock will witness 80% more movement than the market. Hence, we can say that if the market goes up, the stock will outperform by 80%. Conversely, if the market plunges, the stock will lose much more value than the market.
Building a Low-Risk Portfolio
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 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.
Here are five of the 23 stocks that fit the bill:
Dean Foods Company is a leading processor and distributor of milk and other dairy products in the U.S. as well as a leading manufacturer of various specialty food products. The company surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 17.81%. For 2016, the company’s earnings are expected to grow almost 25% over the prior 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. The company surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average positive earnings surprise of 19.93%. For fiscal 2017, the company’s earnings are expected to grow more than 17%. Moreover, over the last 60 days, the Zacks Consensus Estimate for the fiscal first quarter saw an increase of more than 13%.
Randgold Resources Limited (GOLD - Free Report) is involved in the exploration and development of gold deposit in the Sub-Saharan Africa region. In the last four quarters, the company posted an average positive earnings surprise of 0.25%. Most importantly, for 2016, the company’s earnings are expected to grow almost 60% over the prior year.
ARI Network Services Inc. (ARIS - Free Report) is the provider of software-as-a-service, data-as-a-service, and other related solutions to customers like dealers, distributors and equipment manufacturers. ARI Network posted average positive earnings surprise of 4.17% for the last four quarters. For fiscal 2016, the company is projected to post year-over-year earnings growth of 17.6%.
MarketAxess Holdings Inc. (MKTX - Free Report) is a leading multi-dealer trading platform that offers institutional investors access to global liquidity in products like U.S. high-grade corporate bonds, emerging markets and high-yield bonds, European bonds, U.S. agency bonds, credit derivatives and other fixed-income securities. Over the last 60 days, the Zacks Consensus Estimate for second-quarter earnings saw an increase of almost 4%. On top of that, for 2016, MarketAxess’ earnings are projected to improve almost 23% year over year.
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 »