Beta is a highly flawed but still-useful proxy for measuring a stock's volatility. A stock with a beta of 1.0 moves in lockstep with the market. A stock with a beta of 2.0 moves twice as much in whichever direction the market's heading (good when the market is heading up, bad when it's heading down), and so forth.
While equating volatility with the broader term "risk" is problematic, I think it would be instructive to look at the five highest-beta stocks available on major U.S. stock exchanges, because after a massive yearlong bull rally, investors seem more nervous now. In uncertain times, riskier stocks are often (but, of course, not always) the hardest hit.
My research screened out penny stocks -- those trading for less than $1 per share or with market capitalizations under $100 million -- which are notoriously volatile. Here are the top five results:
|
Stock |
Recent Price |
1-Year Beta |
1-Year Price Change |
|---|---|---|---|
|
Human Genome Sciences |
$23.82 |
6.83 |
763% |
|
Targacept |
$20.32 |
4.79 |
685% |
|
Radian Group |
$8.14 |
4.68 |
147% |
|
McClatchy |
$3.91 |
4.68 |
421% |
|
FSI International |
$3.73 |
4.34 |
729% |
Data provided by Capital IQ, a division of Standard & Poor's. As of June 9, 2010.
So what?
Each of these stocks absolutely pummeled the S&P 500's one-year return. That they have enjoyed massive run-ups, and that they sport extremely high betas, does not make them bad investments. But it does mean that they'll likely continue to be subject to intense price movements, so investors current or prospective should proceed accordingly.
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