Stock Screen: Low-Beta Beauties
The risk metric known as beta can be a useful investment criterion during these times of market volatility.
An issue with a beta of 1.5, for example, tends to move 50% more than the total market in the same direction. An issue with a beta of 0.5 tends to move 50% less. If a stock or stock fund moved exactly as the market moved, it would have a beta of 1.0. Thus, high beta is typical of a volatile stock, while a low beta is typical of a stock that moves less than the market as a whole. A stock with a negative beta moves in the direction opposite to that of the market. With a beta of -1.0, a stock has the same volatility as the market, but tends to rise when the market falls, and vice versa.
Stock fund betas are calculated once a month using 36 months of return data.
S&P's stock betas are computed by Standard & Poor's Compustat Services and are available for all U.S. stocks for which a five-year trading history has been compiled. Sixty month-end prices are used for the calculations, which are un-levered (that is, not smoothed to eliminate any sharp, sudden changes). Dividends paid are included in S&P's beta calculations. The S&P 500-stock index is used as a proxy for the market as a whole.
Even though 60 data points are used, extreme price volatility over a few months within the five-year time span may occasionally distort a beta calculation. Special events, such as takeovers, will obviously affect results.
Considering the overall market's performance over the past three years, we screened for four- and five-STARS stocks with negative betas (suggesting inverse performance) or a positive beta of 0.25 or lower. Sixteen stocks made the cut.
Company/S&P STARS Rank
Abbott Laboratories (ABT)/5 STARS
Associated Banc-Corp (ASBC)/4 STARS
BB&T Corp. (BBT)/4 STARS
Celgene (CELG)/5 STARS
Genentech (DNA)/4 STARS
General Mills (GIS)/5 STARS
J. Crew (JCG)/4 STARS
Kinder Morgan Energy (KMP)/5 STARS
NuStar Energy (NS)/4 STARS
OSI Pharmaceuticals (OSIP)/4 STARS
Owens & Minor (OMI)/4 STARS
PepsiCo (PEP)/4 STARS
Southwest Airlines (LUV)/4 STARS
Wal-Mart Stores (WMT)/5 STARS
Wells Fargo (WFC)/4 STARS
Zions Bancorporation (ZION)/4 STARS