5 Low-Beta Stocks to Beat Coronavirus-Induced Volatility
Markets are extremely volatile as the large but opposing forces of gradual economic recovery and the new wave of coronavirus infections keep investors on the edge. Hence, it is of utmost importance to create a portfolio of low-beta securities since such stocks not only deliver healthy returns but also provide a shield against market volatility.
Meaning of Beta
Beta measures the volatility or risk of a particular asset in comparison to the market. In other words, beta measures the extent of a security’s price movement relative to the market. In this article, we are considering the S&P 500 as the market.
If a stock has beta of 1, then the price of the stock will move with the market. So, the stock is more volatile than the market if its beta is more than 1. In the same way, the stock is not as volatile as the market if its beta is less than 1.
For example, if the market offers a return of 20%, a stock with beta of 3 will return 60%, which is overwhelming. Similarly, when the market slips 20%, the stock will sink 60%, which is devastating.
Screening Criteria:
We have taken beta between 0 and 0.6 as our prime criterion for screening stocks that are less volatile than the market. However, this should not be the only factor to be considered while selecting a winning strategy. We need to take into account other parameters as well that can add value to the portfolio.
Percentage Change in Price in the Last 4 Weeks greater than zero: This ensures that the stocks saw positive price movement over the last 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.
Here are five of the 10 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. Sporting a VGM Score of A, this Westborough, MA-headquartered company’s expected EPS growth rate for the next five years is 13.5%, which compares favorably with the industry's 12.3%.
Eli Lilly and Company LLY, headquartered in Indianapolis, IN, is a leading manufacturer of pharmaceutical products. The stock is likely to see earnings growth of 12.9% and 15.8% in 2020 and 2021, respectively.
Sprouts Farmers Market, Inc. SFM, based in Phoenix, AZ, is among the fastest growing retailers in the domestic market and primarily offers affordable organic food products. The stock is likely to see earnings growth of 35.2% in 2020.
Based in Cincinnati, OH, The Kroger Co. KR is a leading retailer in the domestic market. For fiscal 2021, the stock is likely to see earnings growth of 29.1%. Also, in three of the past four quarters, the company beat the Zacks Consensus Estimate.
Headquartered in Burlington, MA, Everbridge Inc. EVBG is a leading software company. The stock is likely to see bottom-line growth of 14.3% and 159.4% in 2020 and 2021, respectively.
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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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BJs Wholesale Club Holdings, Inc. (BJ) : Free Stock Analysis Report
Eli Lilly and Company (LLY) : Free Stock Analysis Report
The Kroger Co. (KR) : Free Stock Analysis Report
Sprouts Farmers Market, Inc. (SFM) : Free Stock Analysis Report
Everbridge, Inc. (EVBG) : Free Stock Analysis Report
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