Running with Some Tame Bulls

Are market swings making your portfolio giddy? S&P screens for low-risk, quality names with plenty of room to move

By Michael Kaye, CFA

The recent bounce in stock prices notwithstanding, it's a fair bet that the three-year bear market has considerably diminished the average investor's appetite for risk. One way to reduce the risk in your portfolio is to seek out issues with low volatility -- those that display less pronounced price fluctuations compared to those of the overall stock market during a specific period.

That's the starting point for this week's screen. Among the proprietary investing tools we have at Standard & Poor's is a risk measure that rates a stock's volatility over the past year. Those ranked "1" display high volatility, "2" denotes average, and "3" is low. We started with stocks in the third category.

BEAR TRAP.

  While a low risk profile can be a desirable quality for gun-shy investors, we also wanted to find issues with strong potential for price appreciation. In that regard, we employed two measures in this week's screen. First, we used another measurement exclusive to S&P, one that indicates whether technical analysis based on S&P's computer models signals a bearish, neutral, or bullish outlook on the stock. Those with a bearish outlook are assigned a value of "1", neutral "2," and bullish "3." We sorted for those issues ranked "3."

And finally, we sifted for stocks favored by S&P on a qualitative basis (i.e., analysis of a company's fundamentals). We looked for issues with S&P's highest investment ranking of 5 STARS (buy), meaning that our equity analysts expect them to outperform the overall market over the next 6 months to 12 months.

When we ran the numbers, these 16 stocks emerged:

Low Risk, Top Rank
Company/ticker S&P STARS Rank
Allstate (ALL ) 5
American Standard (ASD ) 5
Aheuser-Busch (BUD ) 5
C.R. Bard (BCR ) 5
Chelsea Property Group (CPG ) 5
Compass Bancshares (CBSS ) 5
Dean Foods (DF ) 5
Evergreen Resources (EVG ) 5
FedEx (FDX ) 5
Praxair (PX ) 5
Procter & Gamble (PG ) 5
SCP Pool (POOL ) 5
Sovereign Bancorp (SOV ) 5
Teva Pharmaceutical (ADR ) 5
Varian Medical Systems(VAR ) 5
Vornado Realty Trust (VNO ) 5

Kaye is a portfolio services analyst for Standard & Poor's

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