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Sidestep Market Volatility With These 5 Low-Beta Stocks
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Investing in risky securities for lucrative returns has become a common strategy for many. Although the tactic works well in bullish market conditions, it might fail when the market turns bearish.
Following extensive research, we have developed a strategy that low-risk stocks could also lead to handsome returns if some other specific criteria are considered.
Beta Understanding
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 10 stocks that qualified the screening:
Based in Broomfield, CO, Noodles & Company (NDLS - Free Report) is a leading operator of restaurants that primarily provides cooked-to-order dishes. The stock is likely to see earnings growth of 700% and 65% in 2019 and 2020, respectively.
Headquartered in Dallas, TX, Match Group, Inc. (MTCH - Free Report) primarily offers dating products across the world. The company beat the Zacks Consensus Estimate in the prior four quarters, the average positive earnings surprise being 20.2%. For 2019 and 2020, the stock is likely to see respective earnings growth of 26% and 17.2%.
Headquartered in Bloomingdale, IL, PCTEL Inc. is mainly engaged in manufacturing precision antennas. The company posts an average positive earnings surprise of 100% for the past four quarters. Through 2019, the stock is likely to see earnings growth of 675%.
Ellington Financial Inc. (EFC - Free Report) is primarily involved in investing in financial properties in the United States that comprises commercial mortgage loans, mortgage-backed securities and other asset classes. Notably, the stock has an average positive earnings surprise of 12.4% for the past four quarters.
NorthWestern Corporation (NWE - Free Report) , based in Sioux Falls, SD, is mainly engaged in providing natural gas and electricity to its broad base of customers. The stock managed to beat the Zacks Consensus Estimate in three of the past four quarters, the average positive earnings surprise being 18.7%. Through 2019, the stock is likely to see earnings growth of 5%.
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.
Image: Bigstock
Sidestep Market Volatility With These 5 Low-Beta Stocks
Investing in risky securities for lucrative returns has become a common strategy for many. Although the tactic works well in bullish market conditions, it might fail when the market turns bearish.
Following extensive research, we have developed a strategy that low-risk stocks could also lead to handsome returns if some other specific criteria are considered.
Beta Understanding
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 10 stocks that qualified the screening:
Based in Broomfield, CO, Noodles & Company (NDLS - Free Report) is a leading operator of restaurants that primarily provides cooked-to-order dishes. The stock is likely to see earnings growth of 700% and 65% in 2019 and 2020, respectively.
Headquartered in Dallas, TX, Match Group, Inc. (MTCH - Free Report) primarily offers dating products across the world. The company beat the Zacks Consensus Estimate in the prior four quarters, the average positive earnings surprise being 20.2%. For 2019 and 2020, the stock is likely to see respective earnings growth of 26% and 17.2%.
Headquartered in Bloomingdale, IL, PCTEL Inc. is mainly engaged in manufacturing precision antennas. The company posts an average positive earnings surprise of 100% for the past four quarters. Through 2019, the stock is likely to see earnings growth of 675%.
Ellington Financial Inc. (EFC - Free Report) is primarily involved in investing in financial properties in the United States that comprises commercial mortgage loans, mortgage-backed securities and other asset classes. Notably, the stock has an average positive earnings surprise of 12.4% for the past four quarters.
NorthWestern Corporation (NWE - Free Report) , based in Sioux Falls, SD, is mainly engaged in providing natural gas and electricity to its broad base of customers. The stock managed to beat the Zacks Consensus Estimate in three of the past four quarters, the average positive earnings surprise being 18.7%. Through 2019, the stock is likely to see earnings growth of 5%.
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.