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:
|Company||Ticker||S&P STARS Rank|
|Acadia Realty Trust||AKR||4|
|Alexandria Real Estate Equities||ARE||4|
|Annaly Mortage Management||NLY||4|
|Capital Automotive REIT||CARS||4|
|CBL & Associates Properties||CBL||5|
|Coventry Health Care||CVH||5|
|Developers Diversified Realty||DDR||4|
|Dun & Bradstreet||DNB||5|
|General Growth Properties||GGP||4|
|Mccormick & Co||MKC||4|
|Pan Pacific Retail||PNP||4|
|Sovran Self Storage||SSS||4|
|St Jude Medical||STJ||5|
De Guia is an analyst for Standard & Poor's Portfolio Advisors