4 Long-Term Buying Opportunities In The Midst Of Elevated Volatility


Following the article about the edge of buying equities in high-volatility environments, especially for minimum-volatility stocks, it's time to dig deeper into the best 24 stocks on our premium watchlist. That's the number of stocks that are currently ranked among the 10% best stocks in the US stock market universe, on a fundamental and momentum basis. Moreover, we always seek consistent long-term leaders, not the ones that cyclically under-or outperform the broader market. I'm also going to share four top picks that are worth checking out in either a high VIX environment or normal VIX (15%-20%) environment.

24 Best US Stocks

Absolute returns

As expected, the absolute returns are stellar if one buys the elite performers when the VIX shoots through the roof. But even in normal VIX environments, the whole basket of the best long-term winners generates returns similar to those realized after a surge in the VIX. The discrepancy is, however, much bigger on a short-term time frame.

(Source: Option Generator Research)

Sharpe Ratio

Double-digit returns are great, but the amount of achieving consistent returns and thus the portion of risk-taking is even more relevant. This is specially true when utilizing portfolio overwriting (covered call writing on a monthly basis, usually out-of-the-money calls) which benefits from stable/bullish price action. Based on my empirical study, the risk/reward profile is skewed extremely positively for VIX >25%. While there are some disconnects between individual stocks that the watchlist is made up of, buy and hold positions entered in elevated VIX environments yield a far better Sharpe ratio.

At first sight, this seems unquestionably logical, but why is everybody selling out during corrections at a time the risk compared to the return is the lowest for new long-term positions?

(Source: Option Generator Research)

Let's take a closer look at 4 stocks which I believe are set to soar in a normalizing VIX, high VIX and all circumstances environment.

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