In the field of investment, detailed research and well-thought-out moves play a vital role. Blindly following the crowd or believing that risky stocks generate the best returns is not quite wise. Though risky bets rake in the highest gains when the market is bullish, they might not be as rewarding when the scenario changes.
After thorough research, we have chalked out an investment strategy that clearly shows that stocks with lower risks can also generate handsome returns if some parameters are taken into consideration.
Meaning of 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 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.
Here are five of the 21 stocks that qualified the screening:
Headquartered in Manhattan Beach, CA, SKECHERS USA, Inc. (SKX - Free Report) is the leading designer of a variety of lifestyle footwear for children, women and men. The company surpassed the Zacks Consensus Estimate in three of the last four quarters, the average positive earnings surprise being 23.6%. The company will likely witness earnings growth of 29.2% and 14.1% in 2018 and 2019, respectively.
US Foods Holding Corp. (USFD - Free Report) , headquartered in Rosemont, IL, is a foodservice distributor which has collaborations with multiple restaurants. The company posted positive earnings surprises in three of the last four quarters. For 2018 and 2019, the firm expects earnings growth of 48.6% and 14.3%, respectively.
Headquartered in Glendale, CA, Dine Brands Global, Inc. (DIN - Free Report) is the leading operator of full-service restaurants. The company beat the Zacks Consensus Estimate in all the last four quarters. We expect the firm to witness earnings growth of 22.6% and 16.2% in 2018 and 2019, respectively.
Headquartered in Los Angeles, CA, Houlihan Lokey, Inc. (HLI - Free Report) is among the leading investment banks. The company beat the Zacks Consensus Estimate in all of the last four quarters, the average positive earnings surprise being 25.6%. For fiscal 2018 and 2018, the firm forecasts earnings growth of 22.7% and 18.3%, respectively.
Global Brass and Copper Holdings, Inc. (BRSS - Free Report) , headquartered in Schaumburg, IL, is primarily engaged in the distribution of non-ferrous products. The company beat the Zacks Consensus Estimate in three of the last four quarters. In 2018, the firm will likely witness earnings growth of 21.2%.
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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