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It is not a thumb rule that only risky securities can generate lucrative returns, although the crowd believes that it is. Risky stocks reward investors only when the market is on a bullish path.

We have created a strategy that clearly shows that less risky stocks could also generate handsome returns if some parameters are considered.

Meaning of Beta

Beta indicates the volatility of a particular stock with respect to the market. In other words, beta measures the extent of stock price movement relative to the market (we are considering S&P 500 here).

If a company has a beta of 1, it means that the relative volatility of the stock is the same as that of the S&P 500. In the same way, if the stock’s beta is greater than 1 then it is more volatile compared to the market. Conversely, a beta below 1 signifies less volatility.

Now, if a portfolio’s beta is 3, it is three times more volatile than the market. Hence, if the market is projected to give 20% return, the portfolio will then definitely contribute 60% return which is amazing.

However, the opposite case also holds true. If the market slips 20%, the portfolio return plummets 60% which is surely a matter of concern.

The Winning Strategy

In our screening criteria we have included beta in the range of 0 to 0.6 for short-listing low risk stocks. But this can’t be the only criterion for betting on stocks. The other parameters that need to be added to create a winning portfolio are:

Percentage Change in Price in the Last 4 Weeks greater than zero: This ensures that the stocks saw positive price movement over the last one month.

Average 20 Day Volume greater than 50,000: A substantial trading volume ensures that the stocks are easily tradable.

Price greater than or equal to $5: They must all be trading at a minimum of $5 or higher.

Zacks Rank equal to 1: Zacks Rank #1 (Strong Buy) stocks indicate that they will significantly outperform the broader U.S. equity market over the next one to three months.

Here are five of the 13 stocks that qualified the screening:

Based in New York, G-III Apparel Group, Ltd. GIII is primarily involved in manufacturing apparel. The company surpassed the Zacks Consensus Estimate in all the prior four quarters, the average positive earnings surprise being 190.8%. For fiscal 2019 and 2020, the company will likely post year-over-year earnings growth of 46.9% and 12.8%, respectively.

Rocky Brands, Inc. RCKY, based in Nelsonville, OH, is the manufacturer of apparel and footwear. The company surpassed the Zacks Consensus Estimate for earnings in each of the prior four quarters, posting an average positive earnings surprise of 56.3%. The company’s earnings will likely grow 46.6% and 8.8% in 2018 and 2019, respectively.