It is widely believed that attractive returns come from risky stocks. However, the strategy seems to work only if the market is bullish. Thus, investing in some specific low-beta stocks seems profitable since the securities are less correlated to the market and have the potential to deliver impressive returns even during bearish market conditions.
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. You can see the complete list of today’s Zacks #1 Rank stocks here.
Here are five of the 18 stocks that fit the bill:
Headquartered in Omaha, NE, Lindsay Corporation (LNN - Free Report) is primarily involved in providing transportation and irrigation solutions. For fiscal 2020 and 2021, the stock is likely to see earnings growth of 85.5% and 23%, respectively.
Spirit Airlines Inc. (SAVE - Free Report) , headquartered in Miramar, FL, is an ultra low-cost carrier. The stock is likely to see earnings growth of 5.1% and 12.3% in 2020 and 2021, respectively. The company has also managed to beat the Zacks Consensus Estimate for earnings in three of the prior four quarters, the average positive earnings surprise being 2.8%.
Headquartered in Atlanta, GA, PulteGroup Inc. (PHM - Free Report) is a leading homebuilding company in the United States. In 2020 and 2021, the stock is likely to see earnings growth of 17.2% and 9.2%, respectively.
MicroStrategy (MSTR - Free Report) , headquartered in Tysons Corner, VA, is primarily a business intelligence company. In 2020, the stock is likely to see earnings growth of 25%.
Headquartered in Hollywood, FL, HEICO Corporation (HEI - Free Report) is a leading designer and manufacturer of electronic and defense products. The stock has managed to beat the Zacks Consensus Estimate for earnings in the last four quarters. In fiscal 2020 and 2021, the stock is likely to see earnings growth of 17.8% and 5.5%, 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.
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.