Tame Market Volatility with These 5 Low-Beta Stocks
There is no rule that investors should always play risky stocks to scoop up returns. In fact, there are strategies to create a portfolio of less risky stocks that could also have impressive outcome.
Risky securities reap goods return only when the market remains bullish but the converse scenario should also be considered. In this article, we have presented a strategy and proved that good returns can also be generated with low-risk stocks when some other parameters are taken into account.
Beta Understanding
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.
Screening Criteria
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 11 stocks that qualified the screening:
Headquartered in Milwaukee, WI, The Marcus Corporation MCS is the owner and operator of movie theatres, hotels and resorts. The company managed to beat the Zacks Consensus Estimate in three of the last four quarters with an average positive earnings surprise of 18.36%. We also expect earnings for the current year to grow 10.3%.
Papa Murphy's Holdings Inc. FRSH – headquartered in Vancouver, WA – is the owner and operator of pizza stores. For the current year, the company is expected to witness year-over-year earnings growth of 31.25%. On top of that, Papa Murphy's Holdings posted average positive earnings surprise of 147.69% over the prior four quarters.
Based in Erie, PA, Erie Indemnity Company ERIE is a provider of services like underwriting and policy issuance for policyholders on behalf of the Erie Insurance Exchange. The company surpassed the Zacks Consensus Estimate in all the prior four quarters with an average positive earnings surprise of 15.03%. For the current year, the Zacks Consensus Estimate of earnings was revised upward over a period of 60 days.
Arbor Realty Trust Inc. ABR – headquartered in Uniondale, NY – is involved in investments in a diversified portfolio of structured finance assets. Arbor Realty Trust beat the Zacks Consensus Estimate for earnings in each of the previous four quarters.
Real estate firm Farmland Partners Inc. FPI – based in Denver, CO – is looks to buy farmlands situated in North America. The company delivered an average positive earnings surprise of 55.04% in the prior four quarters. Also, for the current year, the sales estimate shows 39.5% year-over-year growth.
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/.
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Marcus Corporation (The) (MCS): Free Stock Analysis Report
Erie Indemnity Company (ERIE): Free Stock Analysis Report
Arbor Realty Trust (ABR): Free Stock Analysis Report
Papa Murphy's Holdings, Inc. (FRSH): Free Stock Analysis Report
Farmland Partners Inc. (FPI): Free Stock Analysis Report
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