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Buy These 5 Low-Beta Stocks to Tackle Volatility Woes

Smart investors usually develop strategies after extensive research and avoid following the herd, which believes risky stocks can only generate lucrative returns.

We have thus created a strategy that promises handsome returns from less-risky stocks if some parameters are taken into account.

Understanding 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 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 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 15 stocks that fit the bill:

Based in Vancouver, Canada, lululemon athletica inc.LULU is involved in distributing athletic apparel. The company surpassed the Zacks Consensus Estimate in all the prior four quarters, the average positive earnings surprise being 10.9%. For fiscal 2018 and 2019, we expect the firm to post earnings growth of 24.3% and 16.4%, respectively.

Perry Ellis International, Inc.PERY , headquartered in Miami, FL, is involved in designing premium apparel for both men and women. The company posted an average positive earnings surprise of 19.6% for the past four quarters. The Zacks Consensus Estimate for fiscal 2019 earnings has been revised upward to $1.90 from $1.83 over the past 60 days.

Based in Boston, MA, The Boston Beer Company, Inc.SAM is a prime brewer of varieties of Samuel Adams beer. The firm beat the Zacks Consensus Estimate in three of the last four quarters, the average positive earnings surprise being 41.8%.

Medifast, Inc.MED , headquartered in Baltimore, MD, is the provider of nutritional products. The company surpassed the Zacks Consensus Estimate in the prior three quarters, the average positive earnings surprise being 16.8%. For 2018 and 2019, the firm is expected to see earnings growth of 59.4% and 30.2%, respectively.

The Navigators Group, Inc.NAVG , headquartered in Stamford, CT, primarily arranges clients with customized insurance solutions. The company surpassed the Zacks Consensus Estimate in three of the last four quarters, the average positive earnings surprise being 14.7%.

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 .

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The Boston Beer Company, Inc. (SAM): Free Stock Analysis Report

MEDIFAST INC (MED): Free Stock Analysis Report

The Navigators Group, Inc. (NAVG): Free Stock Analysis Report

lululemon athletica inc. (LULU): Free Stock Analysis Report

Perry Ellis International Inc. (PERY): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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