Although many strategies can be built for lucrative investment returns, there is a general belief that only risky stocks can prove profitable. Notably, risky securities perform only in a bullish market.

However, we have employed a low beta strategy along with some parameters to show that decent returns could also be generated from stocks with lower volatility than the market.  

Beta Understanding

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 four stocks that fit the bill:

Headquartered in St. Louis, MO, Arch Coal ARCH is among the leading producers of premium thermal coal. The company beat the Zacks Consensus Estimate in three of the past four quarters, the average positive earnings surprise being 44.2%. In 2018, the stock will likely see earnings growth of 32.5%.

North American Construction Group Ltd. NOA is the provider of services related to mining and heavy construction. In three of the last four quarters, the company surpassed the Zacks Consensus Estimate. The firm will likely see earnings growth of 235.7% and 134.1% in 2018 and 2019, respectively.

Headquartered in Chicago, IL, United States Cellular Corporation USM is among the leading provider of services associated with wireless telecommunications. The company beat the Zacks Consensus Estimate in all of the past four quarters. The stock is expected to see earnings growth of 91.4% in 2018.

Evergy, Inc. EVRG is a leading provider of reliable and clean energy. The company will likely see earnings growth of 8.8% and 17.8% in 2018 and 2019, 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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Arch Coal Inc. (ARCH) : Free Stock Analysis Report
 
North American Construction Group Ltd. (NOA) : Free Stock Analysis Report
 
United States Cellular Corporation (USM) : Free Stock Analysis Report
 
Evergy Inc. (EVRG) : Free Stock Analysis Report
 
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