Investors generally believe only risky stocks could garner better returns than the market. The strategy works only when the market remains bullish. In a bearish market, the scenario, however, will be opposite.
In this article, we have proven that less risky stocks can also reward investors with handsome returns if some specific parameters are considered while building an investment strategy.
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 13 stocks that fit the bill:
Headquartered in Harrisburg, PA, Ollie's Bargain Outlet Holdings, Inc.OLLI is a leading retailer of electronics, food products, toys and many other products. The company managed to surpass the Zacks Consensus Estimate in each of the prior four quarters, the average earnings surprise being 9.5%. Also, we are expecting year-over-year earnings growth of 27.8% and 20.8% for fiscal 2018 and 2019, respectively.
Movado Group, Inc.MOV , based in Paramus, NJ, is the designer and distributer of premier watches. The company posted an average positive earnings surprise of 0.7%. Movado will likely witness earnings growth of 9.4% and 9.8% for fiscal 2018 and 2019, respectively.
Headquartered in Fort Worth, TX, KMG Chemicals, Inc.KMG is the prime manufacturer of specialty chemicals. The firm beat the Zacks Consensus Estimate in all the prior four quarters with an average positive earnings surprise of 27.6%. For fiscal 2018 and 2019, we are expecting KMG Chemicals to deliver year-over-year earnings growth of 39.7% and 18%, respectively.
Newmont Mining CorporationNEM , headquartered in Greenwood Village, CO, is the leading explorer of gold. The firm managed to surpass the Zacks Consensus Estimate in three of the last four quarters with an average positive earnings surprise of 17.6%. For 2018, the Zacks Consensus Estimate has been revised upward over the prior 30 days.
Based in New York, G-III Apparel Group, Ltd.GIII is a leading designer of apparel for men and women. The company managed to surpass the Zacks Consensus Estimate for earnings in three of the last four quarters. We are also expecting the company to witness year-over-year earnings growth of 2.8% for fiscal 2018.
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.
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 views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.