Markets have become extremely volatile since investors are worried that the second wave of coronavirus might delay the recovery in global economy. Thus, the optimism surrounding the reopening of economies is unlikely to stay unless there is any permanent drug or vaccine solution to COVID-19.
Hence, it would be wise to create a portfolio of low-beta stocks since the securities can not only provide protection against the choppy market but also generate healthy returns.
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 six stocks that qualified the screening:
B&G Foods, Inc. (BGS - Free Report) , headquartered in Parsippany, NJ, has seen its stock price jump 35.6% year to date. This is because consumers are avoiding dine-in restaurants owing to the virus outbreak and are instead stocking up pantries. Being a leading manufacturer and distributer of shelf-stable and frozen food, B&G Foods has been witnessing mounting demand for its products.
The stock has also seen upward earnings estimate revisions for 2020 in the past 60 days and is likely to see earnings growth of 31.1% this year.
K12 Inc. (LRN - Free Report) , based in Herndon, VA, is a leading provider of educational services to students through online deliveries. In the next five years, the stock is likely to see earnings growth of 15%, beating the industry’s 13.8%.
Based in Cincinnati, Ohio, The Kroger Co. (KR - Free Report) is a leading retailer in the domestic market. For fiscal 2021, the stock is likely to see earnings growth of 26.4%. Also, in three of the past four quarters, the company beat the Zacks Consensus Estimate.
Ericsson (ERIC - Free Report) is a leading provider of communication technology solutions. In 2020 and 2021, the stock is likely to see earnings growth of 363% and 29%, respectively.
iClick Interactive Asia Group Limited (ICLK - Free Report) , is a leading provider of online marketing services. In 2020 and 2021, the stock is likely to see earnings growth of 150% and 100%, 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.
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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.