Beta Is Four-Letter Word in Stocks at Start of EarningsMichael P. Regan
Beta has become a bad word on Wall Street, just in time for earnings season.
The second letter of the Greek alphabet is used as shorthand for a measurement of volatility in a security. Put simply, if a benchmark index rises 1 percent you can expect a high-beta stock to rise significantly more than 1 percent. If the benchmark falls more than 1 percent, look out below.
This is all fine and well in a nice, stable, upwardly mobile market like we’ve seen for most of the last five years. In volatile and uncertain markets like we’ve seen in the last few weeks, high-beta stocks have been like a Baby Ruth bar thrown into a swimming pool.
Earnings season can put beta on steroids -- creating the potential for jumpy stocks to soar or plunge even more than usual once their release hits the tape. Some fancy math will allow you to round up the usual suspects and determine which are prone to the biggest changes. And here they are, the Standard & Poor’s 500 Index stocks with the biggest implied one-day moves around earnings, as estimated from options volatility:
Expedia Inc. Shares of the travel-booking company are topping the charts with an implied move of 12.03 percent. Note that could be either up or down. Its last three reports saw moves of 14 percent and 18 percent higher and 27 percent lower. Expedia reports May 1.
Keurig Green Mountain Inc. Jumpier than a suburban dad gearing up for a full Saturday of yard work by knocking back six or seven K cups. It has an implied move of 11.9 percent. Its last three releases have been relatively quiet, with moves of negative 2.8 percent, positive 8.9 percent and negative 1.4 percent. Before that it saw gains of 21 percent, 15 percent and 34 percent. Keurig Green Mountain reports May 7.
Netflix Inc., Akamai Technologies Inc. and Total System Services Inc. round out the top five with implied earnings moves of around 10 percent. Netflix reports April 21, Total System is due the next day and Akamai is scheduled for May 1.
These companies are all on the small side when it comes to the S&P 500, with an average market value of about $13 billion compared with an average of almost $36 billion for the entire benchmark.
But there is a big elephant in the room sitting in the sixth spot: Facebook Inc. The social-network’s stock has risen 14 percent, 2.4 percent and 30 percent following its last three reports. The biggest loss was 12 percent following its second-quarter 2012 release. For its report on April 23, Facebook is showing an implied move of 9.2 percent. By comparison, the average move for S&P 500 companies is 3.3 percent.
For a company with an almost $155 billion market cap, that means there is the potential for almost $14 billion worth of action.
Imagine the friend requests you’d get with that kind of scratch.