There is a general belief that shying away from risky stocks will keep returns at bay. However, this stands true only when the market is bullish.
Since risky securities are mostly exposed to market volatility, we have created a strategy to fetch handsome returns from less-risky stocks.
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 seven stocks that qualified the screening:
lululemon athletica inc. LULU, based in Vancouver, Canada, is a provider of athletic apparel. The company managed to beat the Zacks Consensus Estimate in each of the prior four quarters, the average positive earnings surprise being almost 20%. The company will likely see earnings growth of 20.3% and 16.1% in fiscal year 2019 and 2020, respectively.
Headquartered in Bloomingdale, IL, PCTEL, Inc. PCTI is primarily a provider of wireless network testing solutions along with antennas. The company posted an average positive earnings surprise of 25% for the past four quarters.
Rent-A-Center, Inc. RCII — headquartered in Plano, TX — helps customers own computers, appliances, consumer electronics etc. under flexible rental purchase deals. The company is likely to see earnings growth of 77.4% and 14.5% through 2019 and 2020, respectively.
Headquartered in New York, MongoDB, Inc. MDB is mainly a provider of general-purpose database platform. The stock manged to surpass the Zacks Consensus Estimate in all the prior four quarters, the average positive earnings surprise being roughly 23%.
Headquartered in New Albany, OH, Abercrombie & Fitch Co. ANF is a specialty retailer. The company beat the Zacks Consensus Estimate in each of the prior four quarters, the average positive earnings surprise being 88.3%. For fiscal year 2019 and 2020, the stock is likely to see earnings growth of 21% and 2%, 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.
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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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PC-Tel, Inc. (PCTI) : Free Stock Analysis Report
Rent-A-Center, Inc. (RCII) : Free Stock Analysis Report
lululemon athletica inc. (LULU) : Free Stock Analysis Report
Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
MongoDB, Inc. (MDB) : Free Stock Analysis Report
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