Are you concerned about volatility when choosing between stocks? For ideas on how to limit exposure to volatility, we ran a screen you may be interested in.
We screened for stocks with current "Buy" ratings from Deutsche Bank, meaning analysts at Deutsche Bank expect these stocks to outperform. We then found those with average intra-day trading ranges below 2%, meaning on average these stocks have traded within ranges less than 2% over the last month.
Finally, we ran DuPont analysis on the return on equity (ROE) profitability of these names to find those with strong sources of profitability.
DuPont analyzes return on equity (ROE, or net income/equity) profitability by breaking ROE up into three components:
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
It therefore focuses on companies with the following positive characteristics: Increasing ROE along with,
•Decreasing leverage, i.e. decreasing Asset/Equity ratio
•Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)
Companies with all of these characteristics are experiencing increasing profits due to operations and not to increased use of financial leverage.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.
Do you think these companies offer less risk? Use this list as a starting point for your own analysis.
1. Curtiss-Wright Corp. (CW): Designs, manufactures, and overhauls precision components and systems. On 5/2/11, Deutsche Bank had a Buy rating on the stock. Average intra-day volatility over the last month at 1.66%. MRQ net profit margin at 6.66% vs. 5.96% y/y. MRQ sales/assets at 0.21 vs. 0.204 y/y. MRQ assets/equity at 1.974 vs. 2.028 y/y.
2. Total System Services, Inc. (TSS): Provides electronic payment processing and other services to card-issuing and merchant acquiring institutions. On 10/7/11, Deutsche Bank had a Buy rating on the stock. Average intra-day volatility over the last month at 1.66%. MRQ net profit margin at 12.68% vs. 10.72% y/y. MRQ sales/assets at 0.254 vs. 0.225 y/y. MRQ assets/equity at 1.428 vs. 1.573 y/y.
3. Visa, Inc. (V): Operates retail electronic payments network worldwide. On 10/7/11, Deutsche Bank had a Buy rating on the stock. Average intra-day volatility over the last month at 1.86%. MRQ net profit margin at 40.4% vs. 39.5% y/y. MRQ sales/assets at 0.071 vs. 0.066 y/y. MRQ assets/equity at 1.31 vs. 1.331 y/y.
*Accounting data sourced from Google Finance, all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.