Low Beta + High Performance = Low Risk and High Reward on These 9 Stocks?

by: Kurtis Hemmerling

Beta has really come under attack as being a valid form of assessing risk to reward. Fama and French have theories based on the size effect, while other novel approaches look to tightly grouped analyst forecasts with low historical deviation from actual earnings.

Still, many believe that beta (correlation of stock to market) is not dead. Our simple scan will look for stocks with a beta below 0.5 and a relative strength that beats the market (at least over the past few trading days). The idea is to have stocks with lower volatility than the market with a better than market upside potential. It should be noted that this is a historical stock screen that looks solely to the past for trading clues and is not based on any forward looking forecast.

Screening Criteria:

  • Beta < 0.5
  • Price up for week and quarter (high relative strength since past 3 days for market are sharply down)
  • Price over $5
  • Average True Range under 0.5 (reduction of volatility)
  • Over 500K average daily volume
  • More than 300 million market cap

Low Beta High Peformance Picks

  1. CEF - Central Fund of Canada Limited
  2. WRB - W.R. Berkley Corporation
  3. KR - The Kroger Co.
  4. DUK - Duke Energy Corporation
  5. MO - Altria Group Inc.
  6. MFA - MFA Financial, Inc.
  7. ANH - Anworth Mortgage Asset Corporation
  8. NLY - Annaly Capital Management, Inc.
  9. IAU - iShares Gold Trust


When looking at valuations, we will first consider very low P/E ratios under 10. Of course, IAU is an exchange traded fund so it will not be considered.

Ticker Current P/E
CEF 5.2
MFA 8.99
ANH 7.56
NLY 9.35

Low price to book values under 1.5

Ticker Price to Book
CEF 1.31
WRB 1.13
DUK 1.04
MFA 1.04
ANH 0.92
NLY 1.12

Expected EPS growth is fairly tepid across the board with single digit annualized 5 year growth for almost every stock. However, when P/E ratios are low, the earnings yield should provide a decent return on investment without high growth needed, such as is the case with income stocks. On the other hand, risk goes up with very low P/E stocks so caution is necessary with this double-edged sword.

Dividends are available on all the stocks (except the IAU ETF).

CEF 0.05%
WRB 0.94%
KR 1.82%
DUK 5.47%
MO 6.15%
MFA 11.24%
ANH 12.52%
NLY 14.56%

Of course, you should instantly be wary when yields start coming in very high. You may need to dig deep and determine if the hidden risk, that is not reflected in beta, is acceptable.

A Few Trading Clues

  • CEF has broken above an old high for a new support level around $21.
  • WRB has sharply retreated the past two days. The drop was hidden behind a previous quick price advance. A support exists at $29 and I'd wait to see if it holds first.
  • KR is in the mid-point of an upwards trending channel.
  • DUK hit some resistance above $18 and pulled back slightly. Support is less than 5% below at $17.
  • MO has bounced of its $23.50 support twice creating a double bottom. However, it is holding slightly below the resistance of $25.
  • MFA continues to trend upwards.
  • ANH is at a long-term resistance of $7.05-$7.08. The price bottoms have been rising as prices tighten. All eyes are watching this one.
  • NLY is on the lower edge of its trading channel.

Do you see a serious danger in one of these stocks that is not reflected in beta or historical volatility? Is there one of these that you are very bullish on? I'd love to hear your side of these potential picks that were based on old-school risk assessment. (You may also want to read why due diligence is vital, as highlighted with these 3 picks, after you filter stocks based on predefined scans)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.