Risky stocks are not the only source of high returns and also, the strategy works well only in a bullish market.
However, we have created an investment plan that clearly shows that there are less-risky stocks which could perform well even when the market is bearish.
Meaning of Beta
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 16 stocks that qualified the screening:
Headquartered in Los Angeles, CA, Guess?, Inc. GES, being the operator of retails stores across the globe, is primarily involved in designing and distributing wide varieties of apparel, watches and other consumer products. In fiscal year 2020 and 2021, the stock is likely to witness earnings growth of roughly 29% and 27%, respectively.
Denny's Corporation DENN, headquartered in Spartanburg, SC, is primarily involved in operating full-service restaurants across the world. The company has an average positive earnings surprise of 8% for the last four quarters. Moreover, over the past 60 days, the Zacks Consensus Estimate for its 2019 has been revised upward.
Headquartered in Washington, District of Columbia, FTI Consulting, Inc. FCN is primarily a business advisory player. The company beat the Zacks Consensus Estimate for earnings in the prior four quarters. Through 2019, the stock is likely to witness earnings growth of roughly 10%.
Oaktree Capital Group LLC OAK, headquartered in Los Angeles, CA, is basically an investment management player with focus on alternative investment. The company beat the Zacks Consensus Estimate in three of the past four quarters. Through 2019, the stock is likely to witness earnings growth of 32%.
Headquartered in Pembroke, Bermuda, RenaissanceRe Holdings Ltd. RNR is mainly involved in providing products related to reinsurance and insurance. The stock beat the Zacks Consensus Estimate in each of the last four quarters. Through 2019, the company is likely to record earnings growth of 40%.
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.
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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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Oaktree Capital Group, LLC (OAK) : Free Stock Analysis Report
RenaissanceRe Holdings Ltd. (RNR) : Free Stock Analysis Report
Denny's Corporation (DENN) : Free Stock Analysis Report
Guess?, Inc. (GES) : Free Stock Analysis Report
FTI Consulting, Inc. (FCN) : Free Stock Analysis Report
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