It is not a thumb rule that only risky securities can generate lucrative returns, although the crowd believes that it is. Risky stocks reward investors only when the market is on a bullish path.
We have created a strategy that clearly shows that less risky stocks could also generate handsome returns if some parameters are considered.
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%, the portfolio return plummets 60% which is surely a matter of concern.
The Winning Strategy
In our screening criteria we have 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.
Here are five of the 13 stocks that qualified the screening:
Based in New York, G-III Apparel Group, Ltd. GIII is primarily involved in manufacturing apparel. The company surpassed the Zacks Consensus Estimate in all the prior four quarters, the average positive earnings surprise being 190.8%. For fiscal 2019 and 2020, the company will likely post year-over-year earnings growth of 46.9% and 12.8%, respectively.
Rocky Brands, Inc. RCKY, based in Nelsonville, OH, is the manufacturer of apparel and footwear. The company surpassed the Zacks Consensus Estimate for earnings in each of the prior four quarters, posting an average positive earnings surprise of 56.3%. The company’s earnings will likely grow 46.6% and 8.8% in 2018 and 2019, respectively.
Based in Broomfield, CO, Vail Resorts, Inc. MTN is among the leading operators of mountain resort. The company surpassed the Zacks Consensus Estimate in three of the last four quarters, the average positive earnings surprise being 7.6%. We expect the company to post earnings growth of 72.6% for fiscal 2018.
Vanda Pharmaceuticals Inc. VNDA, headquartered in Washington, the District of Columbia, is a leading developer of advanced therapies for patients. For the last four quarters, the company’s average positive earnings surprise is 261.7%. Vanda Pharmaceuticals is expected to see earnings growth of 157.1% and 296.7% in 2018 and 2019, respectively.
IntriCon Corporation IIN, headquartered in Arden Hills, MN, is a pioneer in developing micro-miniature devices like hearing products for patients. The company beat the Zacks Consensus Estimate in all of the last four quarters, the average positive earnings surprise being 158.3%.
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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IntriCon Corporation (IIN) : Free Stock Analysis Report
Vail Resorts, Inc. (MTN) : Free Stock Analysis Report
Vanda Pharmaceuticals Inc. (VNDA) : Free Stock Analysis Report
Rocky Brands, Inc. (RCKY) : Free Stock Analysis Report
G-III Apparel Group, LTD. (GIII) : Free Stock Analysis Report
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