In today’s unpredictable financial landscape, investors are increasingly seeking ways to help mitigate risk. One strategy that can make sense is focusing on low beta stocks that also demonstrate solid fundamentals. Let’s explore the benefits of this approach and highlight some standout companies that fit the bill.
Understanding Beta and Its Importance
Beta is a measure of a stock’s volatility in relation to the overall market. A beta of 1 indicates that the stock moves in line with the market, while a beta less than 1 suggests lower volatility. Low beta stocks are often seen as more stable investments, particularly during market downturns.
Benefits of Low Beta Stocks
- Reduced Portfolio Volatility: By including low beta stocks, investors can smooth out the ups and downs in their portfolio, potentially leading to a less stressful investing experience.
- Downside Protection: These stocks tend to fall less dramatically during market corrections, helping to preserve capital in turbulent times.
- Steady Performance: Low beta stocks often provide more consistent returns over time, which can be especially appealing for risk-averse investors or those nearing retirement.
- Dividend Potential: Many low beta stocks are mature companies that pay regular dividends, offering an additional income stream.
Combining Low Beta with Strong Fundamentals
While low volatility is desirable, it’s crucial not to sacrifice growth potential or financial strength. This is where Validea’s guru-inspired models come into play. These models, based on the strategies of legendary investors, help identify stocks that not only have low beta characteristics but also possess solid fundamentals and growth prospects.
Let’s examine five low beta stocks that score highly on Validea’s models:
1. LPL Financial Holdings Inc (LPLA)
LPL Financial, with a beta of 0.95, offers the stability of a low beta stock while scoring an impressive 100% on Validea’s Patient Investor model, inspired by Warren Buffett’s approach. The company’s consistent earnings growth, with EPS increasing from $1.75 to $13.69 over the past decade, demonstrates its strong market position in the financial services sector.
Key fundamentals supporting LPLA’s high score include:
- Return on Equity (ROE) averaging 33% over the past decade
- Debt-to-Equity ratio of 43.77%, indicating conservative financial management
- Projected future EPS of $120.09 in ten years, based on current growth rates
Preferred Bank, boasting a low beta of 0.85, earns a perfect 100% score on Validea’s P/E Growth Investor model, inspired by Peter Lynch’s strategy. This regional bank has demonstrated impressive growth while maintaining a conservative valuation.
Standout metrics include:
- P/E/G ratio of 0.38, indicating significant undervaluation relative to growth
- EPS growth rate of 21.3% based on 3-5 year historical averages
- Strong financials with an Equity/Assets ratio of 11% and Return on Assets of 2.09%
Energy giant Exxon Mobil, with a beta of .88, warrants inclusion due to its exceptional 100% score on Validea’s Growth/Value Investor model, based on James O’Shaughnessy’s strategy. XOM combines the stability of a large-cap stock with attractive value characteristics.
Key factors contributing to XOM’s high score:
- Market cap of $524.8 billion, providing significant stability
- Strong cash flow per share of $13.11, well above market average
- Attractive dividend yield of 3.22%
4. BJ’s Wholesale Club Holdings Inc (BJ)
BJ’s Wholesale Club, with a beta of 0.69, exemplifies low volatility while scoring 100% on Validea’s Growth/Value Investor model. The company has shown consistent growth in the competitive retail sector.
Impressive fundamentals include:
- Persistent earnings growth, with EPS increasing each year over a five-year period
- Price/Sales ratio of 0.52, indicating an attractive valuation
- Strong relative strength, ranking in the top 50 of stocks screened
5. International Money Express Inc (IMXI)
International Money Express, sporting a low beta of 0.76, achieves a perfect 100% score on Validea’s Growth/Value Investor model. This financial services company has demonstrated impressive growth while maintaining an attractive valuation.
Key metrics supporting IMXI’s high score:
- Market cap of $577 million, meeting the model’s minimum size requirement
- Consistent earnings growth over a five-year period
- Price/Sales ratio of 0.87, well below the 1.5 threshold favored by the model
Balancing Stability and Growth Potential
By focusing on low beta stocks that also score highly on Validea’s guru-inspired models, investors can potentially achieve the best of both worlds – reduced volatility and strong fundamental characteristics. These five featured companies have the potential to offer stability during market turbulence while still positioning for long-term growth.
