Most investors pick risky stocks for high returns. However, the strategy works well only when the market is bullish. Precisely, risky securities have high market exposure and generate lackluster returns in the bearish market conditions. Hence, the best way to avoid market volatility is to develop a portfolio of low-beta stocks.
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 instance, 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.
We have taken beta between 0 and 0.6 as our prime criterion for screening stocks that are less volatile than the market. But this should not be the only factor to be considered while selecting a winning strategy. We need to take into account other parameters that can add value to the portfolio.
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 11 stocks that qualified the screening:
Headquartered in Washington, District of Columbia, FTI Consulting Inc FCN primarily offers services related to business advisory. Notably, the company surpassed the Zacks Consensus Estimate in the prior four quarters, the positive earnings surprise being roughly 67%, on average. For 2019, the stock is expected to see earnings growth of 48%.
Chuy’s Holdings Inc. CHUY, headquartered in Austin, TX, is a leading operator of full-service restaurants. The stock beat the Zacks Consensus Estimate for earnings in three of the prior four quarters. For 2019 and 2020, the company is likely to see earnings growth of 13.6% and 12.2%, respectively.
Headquartered in Minneapolis, MN, Target Corporation TGT is basically a general merchandise retailer. For fiscal years 2019 and 2020, the company is likely to see earnings growth of 18.4% and 8%, respectively.
ChannelAdvisor Corporation ECOM, headquartered in Morrisville, NC, is primarily involved in providing cloud-based e-commerce solutions. For 2019 and 2020, the stock is likely to see earnings growth of 223.1% and 26.2%, respectively.
Headquartered in Westlake Village, CA, PennyMac Financial Services, Inc. PFSI is engaged in originating and servicing mortgage loans. For 2019 and 2020, the stock is likely to see earnings growth of 74.1% and 2.1%, 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.
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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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ChannelAdvisor Corporation (ECOM) : Free Stock Analysis Report
PennyMac Financial Services, Inc. (PFSI) : Free Stock Analysis Report
Target Corporation (TGT) : Free Stock Analysis Report
Chuy's Holdings, Inc. (CHUY) : Free Stock Analysis Report
FTI Consulting, Inc. (FCN) : Free Stock Analysis Report
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