“There can be no great accomplishment without risk”.
In other words, to get good returns investors may be inclined to spend money on stocks that entail a certain amount of risk. But healthy returns can be achieved even if we invest in stocks with low risk after considering some crucial parameters. We have created a strategy in this article focusing on low beta stocks.
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 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: 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 22 stocks that qualified the screening:
The Marcus Corporation (MCS - Free Report) - headquartered in Milwaukee, WI - is one of the leading names in the lodging and entertainment industries in the U.S. Over the last two quarters, the company posted an average positive earnings surprise of 17.92%. On top of that, over the last 60 days, the Zacks Consensus Estimate for the current year saw an increase as most of the estimates were revised upward.
Burlington Stores Inc. (BURL - Free Report) - based in Burlington, NJ – is a retailer of branded apparel products in the U.S. The company surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 25.58%. For the current year, the company’s earnings are expected to grow 37.6% over the prior year.
Movado Group Inc. (MOV - Free Report) - based in Paramus, NJ – is a designer, distributer and developer of fine watches in the U.S and all over the world. The company beat the Zacks Consensus Estimate in three of the last four quarters, with an average beat of 10.53%.
The Children's Place Inc. (PLCE - Free Report) - based in Secaucus, NJ - is a retailer of branded apparel items for children that include footwear, accessories and other products. For the last four quarters, the company delivered an average positive earnings surprise of 36.28%. For the current year, the company’s earnings are expected to grow almost 41% over the prior year.
Mercury Systems Inc. (MRCY - Free Report) - headquartered in Chelmsford, MA – is a provider of diverse critical defense and intelligence programs in the U.S. For the last four quarters, the company delivered an average positive earnings surprise of 79.05%.
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.
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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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