While the markets continue to scale new heights, the recent phase of brief but sharp correction was a good reminder of how things can go wrong from here. As a result, it may not be a bad option to consider adding low beta stocks such as Arotech Corporation (NASDAQ: ARTX) and Northeast Bancorp (NASDAQ:NBN) to one's portfolio. Here is why.
Michigan based Arotech Corporation is a defense and security products and services company. The stock has jumped 18 percent over the last month, but it otherwise has a tendency to move in contained quantum as the beta value of 0.4 signifies. Since it is a low beta stock, the downside may be capped from here if the market nosedives for some reason. Except the low beta part which some investors may not be interested in, the stock is otherwise a solid choice for long term investors. Currently trading at a price earnings ratio of 34, its pricing at 13.4 times of forward earnings is rather attractive.
The company has minimal debt on its books which is yet another positive. In the latest quarter, the company's top line, at $22.4 million, was only slightly ahead from the same period of previous year. However, earnings grew to more than double at $1 million. The results are particularly strong and do not include the performance of UEC Electronics, which it acquired in April. Arotech finds upsell opportunities for its existing products to UEC's customer base, which should boost margins of the combined entity in coming quarters. Given its rapidly improving financial performance, analysts at B. Riley have upgraded the stock to 'buy'.
Another solid choice to limit downside is Northeast Bancorp which trades below its book value and has not demonstrated wild movements. Considering it is a regional bank, this Maine based player has been a consistent performer and its stock price has moved in a narrow range of $9.15 - $10.88 over the last 52-weeks.
From a valuations standpoint, Northeast Bancorp's pricing entails substantial discounts as it faces a stagnant top line and margins that are slightly below industry average. This includes a 14 percent discount on its book value and a forward earnings ratio of 11.3. The positive side of this conservative pricing comes in the form of limited downside. Although saturated, the business is cash rich and offers a constant revenue stream. Investors can still expect to be rewarded through a share repurchase program that aims to buyback nearly 8.3 percent of the company's outstanding common shares.