Wednesday , 24 October 2018

These 5 Low Beta Stocks Should Do Well

…With thorough research we have generated a strategy that claims that less-risky securities or portfolios can also generate handsome returns. Here are 5 such stocks.

The original article has been edited here by munKNEE.com for length (…) and clarity ([ ])

Meaning of 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 the beta is equal to 1 it means that the stock is as volatile as the market
  • If the beta is greater than 1 it means that the stock is relatively more volatile
  • If it has beta less than 1 it means that the stock is less volatile than the stock market as a whole.

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. To reach the winning strategy, we also include the following 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 5 of the 18 stocks that fit the bill:

1. Michael Kors Holdings Limited (KORS) is a global luxury lifestyle company based in the United Kingdom. The company surpassed the Zacks Consensus Estimate in all the prior four quarters, the average positive earnings surprise being 35.7%. In fiscal 2019 and 2020, we expect the stock to post earnings growth of 10.8% and 6.4%, respectively. 

2. lululemon athletica inc. (LULU), based in Vancouver, Canada, is the provider of athletic apparel. The company managed to beat the Zacks Consensus Estimate in each of the prior four quarters, the average positive earnings surprise being 19.2%. The company will likely post earnings growth of 35.9% and 16.2% for fiscal 2018 and 2019, respectively.

3. Urban Outfitters, Inc. (URBN), based in Philadelphia, PA,  is a provider of fashion apparel. The company beat the Zacks Consensus Estimate in each of the prior four quarters. In fiscal 2018 and 2019, the firm will likely post earnings growth of 59.3% and 8.5%, respectively.

4. Blue Hills Bancorp, Inc. (BHBK), headquartered in Norwood, MA,  is basically a bank holding company. The firm has an average positive earnings surprise of 11.3% for the last four quarters. In 2018 and 2019, we expect the company to record earnings growth of 78.6% and 15%, respectively.

5. US Ecology, Inc. (ECOL), headquartered in Boise, ID, provides environmental services in North America. The company surpassed the Zacks Consensus Estimate in three of the prior four quarters.

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