U.S. Markets open in 4 hrs 47 mins

5 Low-Beta Stocks to Stay Safe in Volatile Market

Nilanjan Banerjee
We present a strategy that shows that low-risk stocks generate handsome returns if certain parameters are considered.

Apparently, risky stocks offer attractive returns only in bull market conditions. However, risk-averse investors generally avoid such stocks since they significantly underperform amid bearish sentiments.

In this write-up, we have presented a strategy that clearly shows that low-risk stocks also generate handsome returns if some specific parameters are considered.

Beta Understanding

Beta measures the volatility or risk of a particular asset in comparison to the market. In other words, beta measures the extent of a security’s price movement relative to the market. In this article, we are considering the S&P 500 as the market.

If a stock has beta of 1 then the price of the stock will move with the market. So, the stock is more volatile than the market if its beta is more than 1. In the same way, the stock is not as volatile as the market if its beta is less than 1.

For example, if the market offers a return of 20%, a stock with beta of 3 will return 60%, which is overwhelming. Similarly, when the market slips 20% the stock will sink 60%, which is devastating.

Screening Criteria:

We have taken beta between 0 and 0.6 as our prime criterion for screening stocks that are less volatile than the market. But this should not be the only factor to be considered while selecting a winning strategy. We need to take into account other parameters that can add value to the portfolio.

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 nine stocks that qualified the screening:

Rent-A-Center, Inc. RCII — headquartered in Plano, TX — helps customers own computers, appliances, consumer electronics etc. under flexible rental purchase deals. The company is likely to see earnings growth of 77.4% and 14.5% through 2019 and 2020, respectively.

North American Construction Group Ltd. NOA is involved primarily in providing services related to mining and heavy construction. The stock is likely to see earnings growth of 176.2% and 17.2%, through 2019 and 2020, respectively.

Headquartered in Arlington, VA, Rosetta Stone Inc. RST helps motivated learners around the globe to write, speak and read several languages. For this service, the company employs cloud-based solutions. The company managed to beat the Zacks Consensus Estimate in the last four quarters, the average positive earnings surprise being 38.7%. Through 2019 and 2020, the stock is likely to witness earnings growth of 28.4% and 66.9%, respectively.

lululemon athletica inc. LULU, based in Vancouver, Canada, is a provider of athletic apparel. The company managed to beat the Zacks Consensus Estimate in each of the prior four quarters, the average positive earnings surprise being almost 20%. The company will likely see earnings growth of 20.3% and 16.1% in fiscal years 2019 and 2020, respectively.

HDFC Bank Limited HDB, based in Mumbai, India, is a provider of financial services across India, Dubai, Hong Kong and Bahrain. For the year ended Mar 31, 2020, the stock is likely to see earnings growth of 28.2%.

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.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
HDFC Bank Limited (HDB) : Free Stock Analysis Report
 
Rosetta Stone (RST) : Free Stock Analysis Report
 
Rent-A-Center, Inc. (RCII) : Free Stock Analysis Report
 
North American Construction Group Ltd. (NOA) : Free Stock Analysis Report
 
lululemon athletica inc. (LULU) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research