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Dodge Market Volatility With 5 Stocks of Low Beta Value

Nilanjan Banerjee

It is a common belief in the investment world that only risky stocks generate high returns. However, this works well only during bullish market conditions.

In this article, we have developed a strategy that clearly shows that one can generate high returns from portfolios or securities with lower connection to market volatility.

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. 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 Austin, TX, Chuy's Holdings Inc CHUY is among the leading operators of full-service restaurants. Through 2019 and 2020, the company is likely to earnings growth of 6.8% and 8.9%, respectively.

Casey's General Stores Inc CASY, headquartered in Ankeny, IA, is primarily involved in operating convenience stores. The company managed to beat the Zacks Consensus Estimate in the prior four quarters. For fiscal years 2020 and 2021, the stock is likely to see respective earnings growth of 6.9% and 6.4%.

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 35.5%.

RenaissanceRe Holdings Ltd. RNR, headquartered in Pembroke, Bermuda, is primarily a provider of products associated with insurance and reinsurance. The company beat the Zacks Consensus Estimate in the prior four quarters. For 2019, the stock is likely to see earnings growth of 54.4%.

Kinross Gold Corporation KGC, headquartered in Toronto, Canada, is mainly involved in exploiting and developing gold resources. The company beat the Zacks Consensus Estimate in two of the past four quarters, the average positive earnings surprise being 66.7%. For 2019 and 2020, the stock is likely to see earnings growth of 140% and 22.9%, 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.

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.