Although there is a general belief that only risky stocks can prove profitable, such securities perform well only in bullish market conditions.
Notably, there is a strategy which clearly shows that low-beta stocks can also generate lucrative returns if some specific parameters are considered.
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. You can see the complete list of today’s Zacks #1 Rank stocks here.
Here are five of the 24 stocks that fit the bill:
Headquartered in Rosemont, IL, US Foods Holding Corp. USFD is involved in the marketing and distribution of dry, frozen and fresh foods. For fiscal 2019 and 2020, the stock is likely to see earnings growth of 13.3% and 13.2%, respectively.
Genesco Inc. GCO, headquartered in Nashville, TN, operates as a specialty retailer of footwear and accessories. The stock is likely to see earnings growth of 22.3% and 11% for fiscal 2020 and 2021, respectively.
Thomson Reuters TRI, headquartered in Toronto, Canada, is a leading provider of customized software, applications and information. In 2019 and 2020, the stock is likely to see earnings growth of 61.3% and 61%, respectively.
Headquartered in Washington, District of Columbia, FTI Consulting Inc FCN primarily offers services related to business advisory. For 2019, the stock is likely to see earnings growth of 48%.
Ellington Financial Inc. EFC is primarily involved in investing various financial assets, comprising consumer loans, mortgage-backed securities, etc. In 2019, the stock is likely to see earnings growth of 26.2%.
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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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Thomson Reuters Corp (TRI) : Free Stock Analysis Report
Ellington Financial LLC (EFC) : Free Stock Analysis Report
US Foods Holding Corp. (USFD) : Free Stock Analysis Report
Genesco Inc. (GCO) : Free Stock Analysis Report
FTI Consulting, Inc. (FCN) : Free Stock Analysis Report
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