Risky stocks are not the only source of high returns and also, the strategy works well only in a bullish market. Although risk lovers are willing to take the menace, risk averse investors mostly try to avoid stocks with significant exposure to the market.
We have created a strategy, suitable for both risk lovers and risk-averse investors, that shows high returns can also be generated from stocks with lower correlation to market volatility.
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 (Strong Buy) stocks here.
Here are five of the 19 stocks that qualified the screening:
Headquartered in Toronto, Canada, Alamos Gold Inc. (AGI - Free Report) is a leading producer of gold with operations in four North American mines. In 2019 and 2020, the stock is likely to see earnings growth of 320% and 5.7%, respectively.
Kinross Gold Corporation (KGC - Free Report) , headquartered in Toronto, Canada, is mainly involved in exploiting and developing gold resources. The company beat the Zacks Consensus Estimate in two of the past four quarters, the average positive earnings surprise being 66.7%. For 2019 and 2020, the stock is likely to see earnings growth of 150% and 29%, respectively.
Casey's General Stores Inc (CASY - Free Report) , headquartered in Ankeny, IA, is primarily involved in operating convenience stores. The company managed to beat the Zacks Consensus Estimate in the prior four quarters. For fiscal years 2020 and 2021, the stock is likely to see respective earnings growth of 6.9% and 6.4%.
North American Construction Group Ltd. (NOA - Free Report) is primarily involved in providing services related to heavy construction and mining. The company is likely to see earnings growth of 228.6% and 12.7% through 2019 and 2020, respectively.
Headquartered in Hampton, Unitil Corporation (UTL - Free Report) is mainly involved in distributing natural gas and utility in America. Through 2019 and 2020, the stock is expected to report earnings growth of 4% and 6.5%, respectively.
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.