Rewards can never come without taking risks. This rule of thumb also true in the investing world and definitely the reward will be more appealing if and only if the market is walking on the bullish path. The reverse scenario is also highly probable and will be painful to bear. We have showed in this article how rewards can also be reaped with low-risk stocks if some parameters are taken into account.
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 the 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. You can see the complete list of today’s Zacks #1 Rank stocks here.
Here are five of the 20 stocks that fit the bill:
Vail Resorts Inc. (MTN - Free Report) – based in Broomfield, CO – is among the leading resort operators in North America. The company is anticipated to post 30.7% year-over-year earnings improvement for the current year. On top of that, over the last four quarters, the company posted an average positive earnings surprise of 2.22%.
Big 5 Sporting Goods Corp. (BGFV - Free Report) – headquartered in El Segundo, CA – is a retailer of sporting goods in the western U.S. In the current year, the company will likely witness year-over-year earnings improvement of almost 4%. For the last four quarters, the company delivered an average positive earnings surprise of 4.78%.
Stamps.com Inc. (STMP - Free Report) – headquartered in El Segundo, CA – is the prime provider of internet-based postage solutions in the U.S. For the last four quarters, the company delivered an average positive earnings surprise of 66.72%. For the current year, the company’s earnings are expected to grow 93.1% over the prior year.
Fibria Celulose SA (FBR - Free Report) – based in São Paulo, Brazil - is involved in the production, sale, and export of short fiber pulp. For the current year, the company’s year-over-year earnings growth is projected at 138.6%. The company surpassed the Zacks Consensus Estimate in three of the last four quarters, with an average beat of 24.58%.
DigitalGlobe Inc. is a Westminster, CO based provider of commercial high-resolution earth imagery products and services all over the world. The company surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 384.67%. For the current year, the company’s earnings are expected to grow 125.6% over the prior 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.
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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/.
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