For Immediate Release
Chicago, IL - May 11, 2012 - Zacks Investment Research presents
their newest list of stocks featured in their weekly Research
Wizard article, which describes how to profit from stock market
opportunities. The ideas in this article focus on finding
outperforming stocks when the market is down. Stocks
Campbell Soup Co.
C.R. Bard, Inc.
First Republic Bank
Apollo Group Inc.
Hatteras Financial Corp
Learn more about Research Wizard at this site:
Here are highlights from our most recent Research Wizard
This week I learned a great lesson of life in my tennis
class. I found myself pitted against a better player and we
were to play just one set. After the first two games, I was
getting blown out while barely winning a point. I was down
0-2, and thought, "This guy's good and it's gonna be ugly." I
imagined him winning six straight games. Then something in my
mind shifted perspective. Just as easily as I pictured the
impending doom, I had a moment of clarity. I envisioned, "No,
get yourself together and make it hard for this guy. You can
play better, so do it!" I rallied back to win six out of the
next eight games to take the set. True story.
Needless to say, I've been bounding around since then and feel I
have a new outlook on life. When you undergo something like
that, it becomes crystal clear that success takes perseverance and
determination. And for some reason, the taste of victory is
always a little sweeter when you've had to struggle for it. I
often try to keep learning from my experiences and apply learned
perspectives to other aspects of my life.
So my experience made me think of how this particularly rings
true for the stock market today. Since May 1, the market's
down over 3% and down nearly 4% since April 2. I
potentially tough times and the Sell in May
about a month ago. Now I've formed an idea on how to find
stocks that outperform in down markets.
Best Stocks for a Down Market
Like life, investing also requires equal measures of skill, luck
and perseverance. So we need to find a way to find profitable
stocks and continue to swim upstream even when the market's current
is against us.
We don't have any control over luck, so let's ignore it in our
winning formula. What we can control is the ability to endure
and our skill. Each person's ability to persist is unique, so
you need to find what works best for you. Paying less
attention to daily market moves, taking meditative breaths, and
having a stiff upper lip are some examples, but find
something--anything--that works specifically for you.
Where I can help you the most, though, is to point you to a tool
that can improve your stock-picking skill. I'm going to use
Zacks Research Wizard
to devise a strategy to pick stocks that tend to perform better
than the market, specifically when the market is losing money.
Let's Take a Look
Since the Research Wizard contains hundreds of data items, I
narrowed the list to a set of the one hundred that I thought would
be helpful in this study. Those factors were selected based
on my own experience and also knowing how others have addressed
this in the past. I then conducted tests from 2002-2011,
using monthly holding period returns for each factor to find the
five that performed best during down markets. Drum roll
please… The best five indicators are Beta,
Coefficient of Variation
Return on Equity
Forward Earnings to Price Ratio
Building a combination strategy using these five indicators
provides very interesting performance results. First off, the
strategy outperforms the market 76% of the time when the market is
down and the average excess return during a down market is +2.1%
per month. For example, if the market returns -1.1% for a
month, this strategy, on average, would return +1.0% for that
Also, this five-factor strategy is less risky than the S&P
500. Its annualized volatility and average losing stretch in
terms of number of periods and returns are all less than the
S&P 500. But what's most remarkable is that this strategy
also outperforms the S&P 500 over the ten-year test period!
The average annual compounded return is 13.3% for the strategy
versus 2.7% for the S&P 500. $10,000 grew to $35,004 for
the strategy and $13,094 for the S&P 500. This
combination also beat the S&P 500 in average return per month,
average number of positive months, and highest number of positive
months. Thus, we kind of have the Holy Grail of a strategy:
one that outperforms the market, yet has less risk It's
not too often you discover something that special!
Here's the method for a market-beating strategy with less
- First, start with only
- Next, create a liquid, investible set of the stocks with
the largest 3000 market values
average daily trading volume ≥ to 100,000 shares
(if there's not enough liquidity, it'll be hard for you to trade
- Because a lot of stocks under a certain price are difficult
to trade, keep
only those stocks trading above $5/share
- Add another filter by selecting
the 250 stocks with the lowest Beta
. (Let's minimize our exposure to the market by selecting
low Beta stocks.)
- From this set, select
the 100 stocks with the highest Coefficient of
. (CoV is the ratio of the consensus annual earnings
estimate divided by standard deviation of the estimates. So
we want a high earnings estimate and a low variation of these
the top 50 stocks with the highest Return on
. (Companies with a high ROE perform well on average and
this holds true for market slides as well. Think "flight to
- Next, opt for the
25 stocks with the highest Pretax Margin
. (Profitable companies tend to perform well in down
- Finally, choose the
stocks with the
lowest price-to-earnings ratio
. (Lower means you want to pay less per unit of
Here are five of the stocks the strategy produced this week
- Campbell Soup Co.
Campbell, a New Jersey-based company, together with its
subsidiaries, engages in the manufacture and marketing of branded
convenience food products worldwide. This company has a Beta
of 0.3, a high consensus earnings estimate with little variation, a
whopping 71% ROE, a Pretax Margin of 15% and a P/E ratio of
14. "Soups on" when the dark clouds of the market loom.
- C.R. Bard, Inc.
C.R. Bard and its subsidiaries design, manufacture, package,
distribute, and sell medical, surgical, diagnostic, and patient
care devices worldwide. This stock has an attractive P/E of
15, a solid Pretax Margin of 18%, a 31% ROE, a high and agreed upon
annual earnings estimate, and a low Beta of 0.34. That all
adds up to a fairly safe and consistent company, and the market
generally rewards those companies in times of despair.
- First Republic Bank
First Republic, together with its subsidiaries, provides
personalized relationship-based preferred banking and business
banking, real estate lending, trust, and wealth management services
to clients in the metropolitan areas of the United States.
This company has an excellent P/E ratio of 12 and a fabulous Pretax
Margin of 41%. Also, the 0.22 Beta is the lowest of these
five stocks. "Solid and stable at an inexpensive price" best
describes this stock.
- Apollo Group Inc.
Apollo, through its subsidiaries, provides online and on-campus
educational programs and services at the undergraduate, masters and
doctoral levels. With a high ROE, high Pretax Margin, and a
low P/E ratio, this stock is a good way to economically buy into
solid corporate profits.
- Hatteras Financial Corp
Hatteras Financial operates as an externally-managed mortgage
real estate investment trust (REIT). In terms of its P/E (8),
this company is the least expensive of the bunch. Coupling
that with the low Beta and the high Pretax Margin creates a good
stock to hold when the market heads south.
Pick Yourself Up, when the Market Kicks You
Just as easily as I was able to turn my tennis game around, you
can turn your investing fortunes around. I know you
can. If you possess a winning strategy, you have to persist
with it even if you suffer a few losses along the way. That's
one of the attributes which separates the great investors from the
poor investors. When faced with adversity, you have to find a
way to work through it if you want to be profitable in the
end. Remember, investing is a marathon not a
Want to find more stocks that outperform when the market takes a
dive? Have your own ideas for selecting stocks in a down
market and want to test it? These questions are very easy to
answer with the
Zacks Research Wizard
Starting today, you are invited to use it free of charge. You'll
have 14 days to create, tweak, and backtest your strategies. At the
same time, you can see the latest picks from pre-loaded winning
strategies that average gains of up to +67.4% per year.
Learn more about your
free trial >>
Let's make some money!
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:
Zacks.com is a property of Zacks Investment Research, Inc.,
which was formed in 1978 by Leonard Zacks. As a PhD in mathematics
Len knew he could find patterns in stock market data that would
lead to superior investment results. Amongst his many
accomplishments was the formation of his proprietary stock picking
system; the Zacks Rank, which continues to outperform the market by
nearly a 3 to 1 margin. The best way to unlock the profitable stock
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Investors should always research companies and securities before
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Web Content Editor
APOLLO GROUP (APOL): Free Stock Analysis Report
BARD C R INC (BCR): Free Stock Analysis Report
CAMPBELL SOUP (CPB): Free Stock Analysis Report
FIRST REP BK SF (FRC): Free Stock Analysis
HATTERAS FIN CP (HTS): Free Stock Analysis
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