There is a general belief that only risky stocks fetch handsome returns. However, the securities are rewarding only in bullish market conditions.
We have created an investment strategy that clearly shows that low-beta stocks can generate lucrative returns even if the market is bearish.
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.You can see the complete list of today’s Zacks #1 Rank stocks here.
Here are five of the 15 stocks that qualified the screening:
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 14.5% and 6.8%.
Headquartered in Anoka, MN, Vista Outdoor Inc. (VSTO - Free Report) is mainly engaged in manufacturing products for outdoor sports. For fiscal 2020 and 2021, the stock is likely to see earnings growth of 14.3% and 122%, respectively.
Chuy’s Holdings Inc. (CHUY - Free Report) , founded in Austin, TX, is a leading operator of full-service restaurants. The stock managed to beat the Zacks Consensus Estimate in three of the trailing four quarters. The company is likely to see earnings growth of 12.5% and 9.4% in 2019 and 2020, respectively.
Headquartered in Tysons Corner, VA, MicroStrategy Incorporated (MSTR - Free Report) primarily provides mobility software and enterprise analytics. The stock is likely to see earnings growth of 78.2% and 57.4% for 2019 and 2020, respectively.
CBIZ, Inc. (CBZ - Free Report) , headquartered in Cleveland, OH, is engaged in providing services related to professional advisory. The stock is likely to see earnings growth of 13% and 7% in 2019 and 2020, 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.