Given high volatility in major indexes, the last three months have been difficult for investors. The primarily reason behind such volatility is the novel coronavirus outbreak. Fear of uncertainty associated with the pandemic created panic among investors and a mass sell-off resulted in a massive drop in major indexes across the globe.
To control the spread of COVID-19, most of the countries across the globe announced lockdown of various degrees and stay-at-home directives. Advisory was issued to maintain hygiene. Decline in commercial and industrial activities due to lockdowns, reduction in demand and rising unemployment had a negative impact on share prices. A substantial drop in demand and price for oil added to the woes.
The Fed Reserve tried to boost the market by lowering interest rates to near-zero levels. The announcement of a financial stimulus package and reopening of operations by a few states led to signs of improvement in the market.
With the gradual withdrawal of restrictions, 21 states of the United States registered a surge in COVID -19 cases, increasing the fear of another lockdown among investors. Moreover, the Fed chairman’s testimony that it will take a long time for the market to recover from the present level triggered negative sentiments. However, job additions and retail sales increase of 17.7% in May are some positives that will boost the market. Amid such a situation, let’s focus on some low-beta stocks that tend to deliver steady performance irrespective of market conditions.
What is 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.
If a company has a beta of 1, it means that the relative volatility of the stock is the same as that of the market. In the same way, if the stock’s beta is greater than 1, then it is more volatile than the market. Conversely, a beta below 1 signifies low volatility.
In a turbulent market, it is advisable to focus on low-beta stocks as these will ensure steady return on investment.
The Winning Strategy
We have used our proprietary Zacks Stock Screener to find out stocks that can deliver steady performance even in this turbulent period. In our screening criteria, we included beta less than 1 for short listing low-risk stocks. But low beta cannot be the only stock selection criteria. So we have added a few other factors that will ensure that these stocks can withstand the ongoing turmoil and provide steady return to investors. The other parameters are:
Percentage Change in Price in the Last 12 Weeks greater than 1: This ensures that the stocks saw positive price movement over the last three months.
Price Performance (Three months)
Average 20 Day Volume greater than 400,000: A substantial trading volume ensures that the stocks are easily tradable.
Price greater than or equal to $30: They must all be trading at a minimum of $30 or higher.
Zacks Rank less than equal to 2: Zacks Rank #1 (Strong Buy) and 2 (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.
VGM Score of A or B: The selected stocks have a VGM Score of A or B. Per our Zacks Style Scores, stocks with a Zacks Rank #1 or 2 and VGM Score of A or B have probability of providing better returns than peers.
Dividend Yield More Than 1: These stocks also pay regular dividend to shareholders.
Here are five stocks that qualified the screening:
Based in San Diego, CA, Sempra Energy SRE provides electric and natural gas services to 3.7 million and 3.4 million customers, respectively.
Over the past 60 days, the Zacks Consensus Estimate for 2020 and 2021 earnings has been revised 1.5% and 1.3% upward, respectively.
Based in Melviele, NY, MSC Industrial Direct Co., Inc. MSM — along with its subsidiaries — distributes metalworking and maintenance, repair, and operations products in the United States and internationally.
Over the past 60 days, the Zacks Consensus Estimate for earnings for fiscal 2020 and 2021 has been revised 7.1% and 3.4% upward, respectively.
Based in Louisville, KY, Papa John’s International, Inc. PZZA operates and franchises pizza delivery and carryout restaurants in the United States and internationally.
Over the past 60 days, the Zacks Consensus Estimate for 2020 and 2021 earnings has been upwardly revised by 13.8% and 13.3%, respectively.
Based in Melbourne, Australia, BHP Group BHP engages in the natural resources business worldwide.
Over the past 60 days, the Zacks Consensus Estimate for earnings for fiscal 2020 and 2021 has been revised 2.2% and 4.9% upward, respectively.
Based in London, United Kingdom, Rio Tinto Group RIO engages in finding, mining, and processing mineral resources on a worldwide basis.
Over the past 60 days, the Zacks Consensus Estimate for 2020 and 2021 earnings has been revised 16.9% and 9.1% upward, respectively.
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