To invest successfully, one needs to do extensive and in-depth research. A smart investor will never follow the herd by believing that only risky stocks can yield impressive returns. Risky stocks do prove lucrative but that’s when the market is bullish.
We have created a strategy which clearly shows that a portfolio of less risky stocks can also generate impressive returns when a few 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.
Here are five of the 19 stocks that fit the bill:
Based in Nelsonville, OH, Rocky Brands, Inc. (RCKY - Free Report) is primarily involved in designing apparel and footwear. The company surpassed the Zacks Consensus Estimate in each of the prior four quarters, the average positive earnings surprise being 264.6%. We expect the stock to see year-over-year earnings growth of 29.3% in 2018.
Urban Outfitters, Inc. (URBN - Free Report) , based in Philadelphia, PA, is a wholesaler and retailer of a variety of consumer goods. The company beat the Zacks Consensus Estimate for earnings in each of the last four quarters. We expect the company to record earnings growth of 47.3% in fiscal 2019.
Headquartered in Danvers, MA, Abiomed, Inc. (ABMD - Free Report) is involved in the distribution of medical devices that assists patient with heart problems. The company posted an average positive earnings surprise of 22.8% for the last four quarters. For fiscal 2019, we expect the stock to post earnings growth of 40%.
FTI Consulting, Inc. (FCN - Free Report) , headquartered in Washington, is primarily involved in providing services related to business advisory. The company has an average positive earnings surprise of 31. 9%, beating the Zacks Consensus Estimate in three of the last four quarters.
Headquartered in Boulder, CO, DMC Global Inc. (BOOM - Free Report) is among the leading producers of clad metal plates. The company surpassed the Zacks Consensus Estimate in three of the last four quarters. Through 2018, we expect the stock to record earnings growth of a massive 1,168.8%.
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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