Stocks That Are Low-Risk Winners

By taking volatility into account, risk-adjusted return is a fairer comparison than absolute return alone. These 30 measure up

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

Before it's here, it's on the Bloomberg Terminal. LEARN MORE