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Success in stock market investing comes from intense research and analysis and not from taking leaps in the dark.

We need to know that the belief that only “risky stocks generate lucrative returns” is a common misconception. In this article, we have come up with an investment strategy that clearly shows that less risky securities can also generate handsome returns if some parameters are considered.  

Understanding 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. But this should not be the only factor to be considered while selecting a winning strategy. We need to take into account other parameters 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 past 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 19 stocks that qualified the screening:

Headquartered in Baltimore, MD, Medifast MED is one of the major providers of healthy living products. The company beat the Zacks Consensus Estimate in each of the prior four quarters, the average positive earnings surprise being 16.6%. The firm will likely post earnings growth of 96.5% and 30% in 2018 and 2019, respectively.

Endo International plc ENDP, headquartered in Dublin, Ireland, is a leading pharmaceutical firm. The company beat the Zacks Consensus Estimate in all the prior four quarters, with the average positive earnings surprise being 29.1%. Over the past 30 days, the Zacks Consensus Estimates for 2018 and 2019 have been revised upward.