U.S. Markets closed

Overcome Market Volatility With These 5 Low-Beta Stocks

Zacks Equity Research
Buoyed by strong production and cost-saving initiatives, Devon Energy (DVN) is likely to beat estimates when it reports first-quarter earnings on Apr 30.

The general belief that only risky stocks generate lucrative returns is not always true. This is because those securities earn handsome returns only when the market is bullish.

In this article, we present a strategy that clearly shows that a low-risk portfolio can also generate impressive returns if 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 29 stocks that fit the bill:

Headquartered in Costa Mesa, CA, El Pollo Loco LOCO is an operator of a chain of restaurants and is known for citrus-marinated fire-grilled chicken. The company delivered average positive earnings surprise of 5.5% for the prior four quarters. For 2019, El Pollo will likely post earnings growth of 10.1%.

Jabil, Inc. JBL, headquartered in Saint Petersburg, FL, is primarily engaged in offering services related to electronic manufacturing. The stock beat the Zacks Consensus Estimate in the last four quarters. For fiscal 2019 and 2020, the stock will likely post earnings growth of 14.1% and 12.6%, respectively.

Omega Healthcare Investors, Inc. OHI is basically a real estate investment trust with primary capital allocations toward healthcare industry. Omega beat the Zacks Consensus Estimate in all the prior four quarters with the average positive earnings surprise being 2.3%. For 2019, the stock is likely to see earnings growth of 3.1%.

Headquartered in Oakland, CA, Pandora Media, Inc. P is basically a music discovery platform. The stock is likely to see earnings growth of 54.8% through 2019.

Talend SA TLND, based in Suresnes, France, offers solutions related to cloud integration and big data. The company beat the Zacks Consensus Estimate in all the prior four quarters. The stock is expected to post earnings growth of 3.1% through 2019.

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.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Pandora Media, Inc. (P) : Free Stock Analysis Report
 
Talend S.A. (TLND) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research