Most investors believe that only risky stocks can yield lucrative returns. Since, those securities are positively correlated with market movements, they generally outperform market only when the market is bullish.
We have presented a strategy in this article that shows low-risk portfolio can also fetch healthy returns only when some other parameters are considered.
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.
The Winning Strategy
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.
Here are five of the 18 stocks that qualified the screening:
Based in Hamilton, Bermuda, Belmond Ltd. BEL is primarily engaged in managing and owning hotels across the world. For 2018 and 2019, the company is expected to see earnings growth of 150% and 20%, respectively.
Starbucks Corporation SBUX, based in Seattle, WA, is widely known as a leading retailer of specialty coffee with business across the globe. The company beat the Zacks Consensus Estimate in the prior four quarters, the average positive earnings surprise being almost 6%. In fiscal 2019 and 2020, the stock is expected to see earnings growth of 12.4% and 11.5%, respectively.
Headquartered in Ankeny, IA, Casey's General Stores, Inc. CASY is the operator of convenience stores with food items like sandwiches, donuts and pizza. In fiscal 2019 and 2020, the stock is expected to post earnings growth of 32.6% and 2.5%, respectively.
Jabil, Inc. JBL, headquartered in Saint Petersburg, FL, is primarily engaged in offering services related to electronic manufacturing. The stock beat the Zacks Consensus Estimate in the last four quarters. For fiscal 2019 and 2020, the stock will likely post earnings growth of 14.1% and 12.6%, respectively.
Headquartered in Boise, ID, IDACORP, Inc. IDA, is primarily engaged in distributing electric energy in the domestic market. The company beat the Zacks Consensus Estimate in the last four quarters, the average positive earnings surprise being 11.7%.
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
IDACORP, Inc. (IDA) : Free Stock Analysis Report
Belmond Ltd. (BEL) : Free Stock Analysis Report
Caseys General Stores, Inc. (CASY) : Free Stock Analysis Report
Starbucks Corporation (SBUX) : Free Stock Analysis Report
Jabil, Inc. (JBL) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research