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Stocks: Steering Clear of Volatility

S&P uncovers five highly ranked names whose betas suggest they don't move in tandem with the broader market—which may be a good thing right now

From Standard & Poor's Equity ResearchWhenever equity markets turn volatile—like now, for example—investors can expect to read a lot about beta. Simply put, beta measures a stock's volatility relative to the overall stock market.

Here's how it works. The Standard & Poor's 500-stock index, standing in for the broader stock market, is assigned a beta coefficient of 1.0. Any stock with a beta greater than 1 is more volatile than the market, while any issue with a lower beta means it tends to be less volatile than the market.

Where are we going with this? Well, for investors worried about the stock market's recent gyrations, selecting a low-beta stock may be a way to sidestep excessive volatility. For the first step in this week's screen, we searched our database for stocks with a beta between 0.1 and -0.1. Stocks with those beta values would not tend to move in step with the overall market—a good thing if you think equities could be heading into rough seas.

Fair Value

But we didn't want to stop there. We wanted to make sure that these stocks were attractive based on another measure: S&P's proprietary Fair Value model, a quantitative stock ranking system. The model calculates a stock's weekly Fair Value—the price at which it should trade at current market levels—based on fundamental data such as corporate earnings and growth potential; return on equity; current yield relative to the S&P 500; and price to book ratio.

Stocks are ranked from 5 (indicating significant undervaluation compared to the Fair Value universe) to 1 (indicating significant overvaluation). We looked for those issues ranked 5.

To avoid speculative stocks, each had to have a market cap above $500 million and a per-share stock price above $5.

When we ran the screen, these five names emerged:


Price (8/2/07)

Amedisys (AMED)


Amerigroup (AGP)


Community Health Systems (CYH)


Dean Foods (DF)


Express Scripts (ESRX)


Kaye, a chartered financial analyst, is an analyst for Standard Poor's Portfolio Services.

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