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Markets & Finance

Stocks That Are Low-Risk Winners


By Numer de Guia, CFA Are you getting properly compensated for the amount of risk you take on in owning stocks? One way to measure that is by tracking a stock's risk-adjusted return -- its average return over a given period divided by its volatility, or risk, commonly measured in terms of

standard deviation of returns.

Risk-adjusted return provides a fairer comparison of investment performance than absolute return alone since it takes into account the uncertainty of an asset's potential for profits or loss.

MINING FOR GOLD. This week, we decided to mine our database for stocks with the most attractive risk-adjusted returns. As with any statistical computation, the number of observations should be large enough to increase the precision of the analysis. So in this instance we used the monthly returns for the past five years. We used the average annual return in the numerator, and the annual standard deviation in the denominator (which is the monthly standard deviation multiplied by the square root of 12).

From the list of stocks with the highest risk-adjusted returns, we then sifted for those issues ranked 4 STARS (buy) or 5 STARS (strong buy) by S&P equity analysts. Stocks with those rankings are expected to outperform the overall market over the next 6 to 12 months.

When we ran the numbers, these 30 names emerged:

RISK-ADJUSTED WINNERS

Company

Ticker

S&P STARS Rank

Acadia Realty Trust

AKR

4

Alexandria Real Estate Equities

ARE

4

Annaly Mortage Management

NLY

4

Apollo Group

APOL

5

Brookfield Properties

BPO

4

Capital Automotive REIT

CARS

4

Caremark Rx

CMX

4

CBL & Associates Properties

CBL

5

Clarcor

CLC

4

Cooper Cos.

COO

5

Coventry Health Care

CVH

5

DR Horton

DHI

4

Dentsply International

XRAY

5

Developers Diversified Realty

DDR

4

Dun & Bradstreet

DNB

5

ENI

E

4

General Growth Properties

GGP

4

iStar Financial

SFI

4

Kimco Realty

KIM

4

Landstar System

LSTR

5

Mccormick & Co

MKC

4

Pan Pacific Retail

PNP

4

Panera Bread

PNRA

4

Regency Centers

REG

4

SCP Pool

POOL

4

Sovran Self Storage

SSS

4

St Jude Medical

STJ

5

Thornburg Mortgage

TMA

4

UGI Corp.

UGI

4

UnitedHealth Group

UNH

4

De Guia is an analyst for Standard & Poor's Portfolio Advisors


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