Investing in risky stocks for lucrative returns is not a thumb rule. During a bull period, securities with high beta or risks will definitely garner more returns than the market but the reverse is also true when the wind is blowing in the opposite direction.
This article will prove that low beta stocks could be fruitful if we take into account some other parameters.
Understanding of Beta
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.
The Winning Strategy
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 one 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 10 stocks that fit the bill:
Headquartered in Milwaukee, WI The Marcus Corporation MCS is a lodging and entertainment company in the U.S. The company managed to beat the Zacks Consensus Estimate in the last three quarters with an average positive earnings surprise of 18.36%. For the current quarter, the Zacks Consensus Estimate for earnings has been revised upward over last 30 days.
Ultratech Inc. UTEK - headquartered in San Jose, CA – is a developer and marketer photolithography and laser thermal processing equipment. For the current quarter, the Zacks Consensus Estimate for earnings has been revised upward over the last 30 days. On top of that, Ultratech posted an average positive earnings surprise of 62.91% in the last four quarters.
First Financial Northwest Inc. FFNW – based in Renton, WA – is a provider of commercial banking services in Washington. Over the last four quarters, the company’s average positive earnings surprise came at 5.52%. Moreover, for the current year, First Financial’s earnings are expected to witness year-over-year growth of 39.9%
Independent Bank Corporation IBCP – based in Grand Rapids, MI – is a leading provider of banking services to customers in Michigan. The company delivered an average positive earnings surprise of 5.31% over the last four quarters. On top of that, for the current year, the company’s earnings will likely experience 12.4% year-over-year growth.
Based in Chicago, IL, Equity Commonwealth EQC is a publicly owned real estate investment trust. Equity Commonwealth beat the Zacks Consensus Estimate in three of the last four quarters with an average positive earnings surprise of 3.59%.
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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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Ultratech, Inc. (UTEK): Free Stock Analysis Report
Independent Bank Corporation (IBCP): Free Stock Analysis Report
Marcus Corporation (The) (MCS): Free Stock Analysis Report
Equity Commonwealth (EQC): Free Stock Analysis Report
First Financial Northwest, Inc. (FFNW): Free Stock Analysis Report
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