For investors seeking lucrative returns, risky stocks are not the only options. Since stocks with high beta or risks have significant market exposure, the securities generate handsome returns but only in a bullish market.
Importantly, a low-risk portfolio can also garner healthy returns when some specific parameters are considered.
Meaning of Beta
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 13 stocks that fit the bill:
Headquartered in Nashville, TN, Genesco Inc. GCO is a leading retailer of footwear with more than 1,490 retail outlets. In fiscal 2020 and 2021, the stock is likely to see earnings growth of 29.6% and 12.4%, respectively.
Headquartered in Minneapolis, MN, Target Corporation TGT is a general merchandise retailer. In full-year 2019 and 2020, the company is likely to see earnings growth of 18.4% and 7.6%, respectively.
Eli Lilly and Company LLY, headquartered in Indianapolis, IN, is a leading manufacturer of pharmaceutical products. The stock is likely to see earnings growth of 4.5% and 15.7% in 2019 and 2020, respectively.
Headquartered in Vancouver, Canada, Pan American Silver Corp. PAAS is primarily involved in extraction and development of silver mines. The stock delivered average positive earnings surprise of 62% in the past four quarters. In 2019 and 2020, the company is likely to record earnings growth of 56.4% and 38.1%, respectively.
ChannelAdvisor Corporation ECOM, headquartered in Morrisville, NC, is primarily involved in providing cloud-based e-commerce solutions. In 2019 and 2020, the stock is likely to witness earnings growth of 223.1% and 26.2%, respectively.
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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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ChannelAdvisor Corporation (ECOM) : Free Stock Analysis Report
Eli Lilly and Company (LLY) : Free Stock Analysis Report
Pan American Silver Corp. (PAAS) : Free Stock Analysis Report
Genesco Inc. (GCO) : Free Stock Analysis Report
Target Corporation (TGT) : Free Stock Analysis Report
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