Want To Combat Market Volatility? Buy 5 Low Beta Stocks
Zacks Investment Research | Jun 23, 2017 08:59AM ET
Most investors are like-minded and believe that only high-risk securities could lead to lucrative return. Yes, the idea is right to some extent as those stocks perform better when markets are bullish. But the converse scenario for a bearish market should also be considered by investors.
After thorough research and analysis, we have developed a strategy which testifies that low-risk stocks could also fetch lucrative returns when some other parameters are considered.
Beta Understanding
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.
Here are five of the 16 stocks that fit the bill:
Based in Houston, TX RCI Hospitality Holdings Inc. (NASDAQ:RICK) is the operator and owner of adult nightclubs, bars and restaurants. For the year ended Sep 2017, the company will likely witness year-over-year earnings growth of 13.6%. Also, the Zacks Consensus Estimate for fiscal 2017 earnings has been revised up over the last 60 days.
H&R Block Inc. (NYSE:HRB) , headquartered in Kansas City, MO, primarily provides services related to tax return preparation and other associated services. The company managed to beat the Zacks Consensus Estimate in three of the last four quarters, with an average positive earnings surprise of 8.95%. Also, for the year ended Apr 2018, the Zacks Consensus Estimate for earnings has been revised up over the last 60 days.
Headquartered in Southport, CT, Sturm, Ruger & Company Inc. (NYSE:RGR) is the designer and manufacturer of firearms in the U.S. The company beat the Zacks Consensus Estimate in the prior two quarters, with an average positive earnings surprise of 22.73%. Moreover, for full-year 2017, the Zacks Consensus Estimate for earnings has been pushed up over a period of 60 days.
Luminex Corporation (NASDAQ:LMNX) — based in Austin, TX — engages in the development of proprietary biological testing technologies and products. For 2017, the company will likely see year-over-year earnings growth of 70.3%. On top of that, over the prior 60 days, the Zacks Consensus Estimate of earnings for full-year 2017 has moved north.
Headquartered in New York, MarketAxess Holdings Inc. (NASDAQ:MKTX) is involved in the operation of electronic trading platform. The company will likely see year-over-year earnings growth of 29.3% for 2017. Moreover, MarketAxess surpassed the Zacks Consensus Estimate in each of the prior four quarters, with an average positive earnings surprise of 7.26%.
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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