It is not easy to come up with an investment strategy that will consistently reward investors with above-average returns. Thorough research and in-depth industry knowledge are required to develop such a strategy.

In this article, we show that risky stocks do not always turn out to be profitable. Securities with lower volatility than the market can also generate lucrative returns.

Beta Understanding

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 a 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% then the portfolio return plummets 60% which is surely a matter of concern.

The Winning Strategy

In our screening criteria, we included beta in the range of 0 to 0.6 for shortlisting 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 23 stocks that qualified the screening:

Headquartered in Vancouver, WA, Papa Murphy’s Holdings, Inc. (FRSH - Free Report) is primarily engaged in distributing fresh pizzas, to be baked at home. The company posted an average positive earnings surprise of 454.2% for the past four quarters. In 2018 and 2019, Papa Murphy’s is expected to see earnings growth of 160% and 24.4%, respectively.

Penumbra, Inc. (PEN - Free Report), headquartered in Alameda, CA, is among the leading providers of medical devices. The company beat the Zacks Consensus Estimate in all of the prior four quarters. Penumbra is expected to witness earnings growth of 4,900% and 65.6% in 2018 and 2019, respectively.

Headquartered in Palo Alto, CA, Tesla, Inc. (TSLA - Free Report) is the leading manufacturer of the electric car. The firm surpassed the Zacks Consensus Estimate in three of the past four quarters. Tesla will likely see earnings growth of 75.8% and 325.4% in 2018 and 2019, respectively.

Ameren Corporation (AEE - Free Report), headquartered in St. Louis, MO, through its affiliates delivers services related to transmission of electricity. The company managed to surpass the Zacks Consensus Estimate in all of the prior four quarters. Ameren is expected to record earnings growth of 18.4% in 2018.

Arbor Realty Trust (ABR - Free Report), headquartered in Uniondale, NY, is a real estate investment trust. The stock beat the Zacks Consensus Estimate in the last four quarters. Arbor Realty Trust will likely see earnings growth of 14.4% in 2018.