Fed’s aggressive stance to maximize job growth by allowing a spike in inflation is fuelling the stock market. The positive is, however, being offset by investors’ concerns over the coronavirus pandemic, which has been hurting the global economy. Thus, there is an urgent need to create a portfolio of low-beta stocks in order to beat the choppy market.
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. You can see the complete list of today’s Zacks #1 Rank stocks here.
Here are five of the 12 stocks that qualified the screening:
BJ’s Wholesale Club Holdings, Inc. BJ: BJ’s Wholesale is an operator of membership warehouse clubs, primarily in the U.S. East Coast. This Westborough, MA-headquartered company’s expected EPS growth rate for the next five years is 15.8%, which compares favorably with the industry’s 12.6%.
Barrick Gold Corporation GOLD is among the leading gold mining players in the world. The stock is likely to see earnings growth of 79.6% and 26.1% in 2020 and 2021, respectively.
Headquartered in El Segundo, CA, Stamps.com Inc. STMP primarily provides solutions related to shipping through the Internet. The company surpassed the Zacks Consensus Estimate in three of the prior four quarters, the average earnings surprise being 186.9%. Also, the Zacks Consensus Estimate for 2020 earnings has been revised upward over the prior 60 days.
Central Garden & Pet Company CENT, based in Walnut Creek, CA, is primarily involved in businesses like manufacturing and distributing pet and garden products. The stock is likely to see earnings growth of 21.9% and 2.2% for fiscal 2020 and 2021, respectively.
Based in Reno, NV, Employers Holdings, Inc. EIG is primarily involved in the commercial property and casualty insurance industry. The company has seen upward earnings estimate revisions for 2020 in the past 30 days.
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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