It's typically the highly volatile stocks that catch our attention, jumping and dropping sharply over time. We often think they may serve us best, too, as they seem to have the potential to give our portfolio a big sudden boost. Consider the quiet low-volatility stocks. Many of them have proven they can surge, too -- and better still, many seem like they still have plenty of surging left to do.
To get a handle on a stock's volatility, investors will frequently look at its beta, which measures how it moves in relation to the overall market. As an example, casino company Melco Crown Entertainment (Nasdaq: MPEL ) sports a beta of 2.15, meaning that if the market advances 10%, it's likely, on average, to advance 2.15 times that, or 21.5%.
Of course, the opposite is true, too. A 20% drop in the market might mean a drop in the neighborhood of 43% for Melco. That volatility cuts both ways. In order to make the most of it, then, investors might seek high-beta stocks that seem to have a low probability of falling. Melco, for example, has been building a big presence in the gambling center of Macau and has been reporting strong revenue growth.
On the opposite side of the beta spectrum are low-volatility stocks. It's important to remember that just because they don't move much when the market moves, that doesn't mean they don't move at all.
Below are a handful of companies that sport:
- Betas below 0.75, suggesting that they're not too volatile.
- Stock-price growth of at least 10% over the past year, suggesting that they have some oomph in them -- as the overall market has advanced just 1% or so in that period.
- Price-to-earnings ratios below 25, suggesting that they they're not wildly overvalued right now.
52-week Stock-Price Change
|Terra Nitrogen (NYSE: TNH )||0.31||55%||11|
|New Gold (AMEX: NGD )||(0.04)||17%||22|
|Altria (NYSE: MO )||0.34||16%||17|
|Duke Energy (NYSE: DUK )||0.31||19%||15|
|Southern (NYSE: SO )||0.25||18%||18|
Source: Motley Fool CAPS.
Digging into details
Fertilizer specialist Terra Nitrogen is poised to profit from continuing global agricultural demand, and it appears poised to continue growing as long as the farm sector remains hot. While many fear that the price of gold might represent a bubble, others remain interested in it. Gold producer New Gold is worth consideration, as it has been making some smart deals and setting itself up for low production costs. Duke Energy has disappointed some recently, facing rising costs and emission charges, but it's also investing in solar energy and seeing strong growth internationally.
Altria has been one of the market's best performers for many decades, but it's also a good reminder that past performance doesn't guarantee future results. The domestic tobacco giant still sports some compelling numbers, but it's also facing litigation, rising tobacco taxes, increased regulation, and a slowly shrinking base of smokers in the United States. Investors might want to look into its global counterpart Philip Morris International (NYSE: PM ) instead. As developing nations develop, more people around the globe will be able to afford tobacco, and regulations in many locations won't be as constricting as they are here.
Meanwhile, electric company Southern may have posted some strong earnings growth, but its free cash flow isn't as robust as investors would like to see. Still, it pays a solid dividend above 4% and has been upping that regularly.
Don't dismiss low-beta stocks, as they may reward you well over time. You might even consider ignoring a stock's beta entirely, as there are plenty of more informative numbers to examine, such as simply revenue growth and profit margins.