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Bet on These 5 Low-Beta Stocks to Fight Market Volatility

We develop an investment strategy that shows low-beta stocks can be rewarding if some parameters are considered.

There is a common misconception that only risky stocks can prove rewarding. Notably, those securities generate handsome returns only when the market is bullish.

However, there are investment strategies that show that low-beta stocks also generate high returns if some 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 12 stocks that fit the bill:

Headquartered in New Albany, OH, Abercrombie & Fitch Co. ANF is among the top-tier retailers with specific and premium apparel for children, women and men. The company beat the Zacks Consensus Estimate in the last four quarters, the average positive earnings surprise being 88.6%. In fiscal 2018, the stock will likely see earnings growth of 40%.

Dr. Reddy’s Laboratories Ltd. RDY, headquartered in Hyderabad, India, is the provider of innovative medicines at affordable rates. We expect Dr. Reddy’s Laboratories to see earnings growth of 40.6% and 50% in fiscal 2019 and 2020, respectively.

Headquartered in Durham, NC, Cree, Inc. CREE is among the leading providers of semiconductor products. For fiscal 2019 and 2020, the stock will likely post earnings growth of 284.2% and 74.3%, respectively.

Otter Tail Corporation OTTR, headquartered in Fergus Falls, MN, is primarily involved in businesses related to manufacturing and electric utility. The company beat the Zacks Consensus Estimate in three of the prior four quarters, the average positive earnings surprise being 18.6%. For 2018 and 2019, the stock will likely see earnings growth of 10.2% and 2.4%.

Employing its high-speed network,Shenandoah Telecommunications Co SHEN — headquartered in Edinburg, VA — is primarily engaged in providing communications services. The stock posted an average positive earnings surprise of 86.7% for the past four quarters. We expect the stock to post earnings growth of 250% and 50.9% in 2018 and 2019, 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.

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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Otter Tail Corporation (OTTR) : Free Stock Analysis Report
 
Shenandoah Telecommunications Co (SHEN) : Free Stock Analysis Report
 
Dr. Reddy's Laboratories Ltd (RDY) : Free Stock Analysis Report
 
Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
 
Cree, Inc. (CREE) : Free Stock Analysis Report
 
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