4 High Beta Stocks For Today's Surging Market

Investors hit the panic button as soon as the U.K. cast 51.8% votes in favor of exiting the European Union (EU). The incident resulted in a bloodbath in the stock market with major indices like the Dow Jones Industrial Average and the S&P 500 Index declining 4.8% and 5.3%, respectively, in just two trading sessions.

However, the markets have stabilized of late with the S&P 500 & Dow scaling to all-time highs. Also, an improved U.S. macroeconomic data backdrop adds to the positive sentiments.

Major Indexes Turn Around

On Jul 11, 2016, the S&P 500 Index hit an intraday high of 2,143.16, soaring 220% from the all-time low the market slipped to in Mar 2009. Moreover, the S&P 500 and the Nasdaq Composite Index have gained over 2% each over the last month backed by the following factors.

Soon after the massive improvement in the S&P 500 Index, the Dow Jones Industrial Average registered an all-time high on Jul 12 on the back of factors like rise in oil prices and improvement in US employment scenario. The Dow rose nearly 0.7%, or 120.74 points, to close at an all-time high of 18,347.67.

Key Factors Behind the Gains

Investors seem to have overcome Brexit-related fears as reflected in the recent stock market rally on news of British Home Secretary, Theresa May, succeeding Prime Minister David Cameron. This has played a major role in boosting investor sentiment.

Moreover, the recent job data has painted a rosy picture of the labor market, dispelling fears over the health of the U.S. economy. The Bureau of Labor Statistics reported that the U.S. economy topped all expectations with as many as 287,000 new jobs. This has improved the growth outlook of the economy for the year.

Also, crude prices improved significantly after the sharp decline in the beginning of the week. The prices of WTI and Brent crude inched up 1.5% and 1.3% to $45.44 per barrel and $46.86 per barrel, respectively. This, in turn, has led to a raised optimism in the markets.

What Should Be the Winning Strategy?

Although volatile market conditions over the past few weeks had made investors jittery, the situation is gradually improving. With both the S&P and the Dow registering new all-time highs, an investor should put his money in stocks that are outperforming the market.

A popular method of achieving this is by picking stocks with high beta. These stocks are inherently more volatile than the markets they are trading in and represent options with higher upside potential.

Beta measures the volatility or risks to a security relative to the market (we are considering the S&P 500 Index here). Beta measures the extent to which the price of a stock moves with respect to the market.

If the beta is equal to 1 it means that the stock is as volatile as the market. Hence, a stock is relatively more volatile if it has beta greater than 1 and less volatile if beta is less than 1.

For example, if the beta is 1.8 then the stock will witness 80% more movement than the market. Hence, we can say that if the market goes up, the stock will outperform by 80%. Conversely, if the market plunges, the stock will lose much more value than the market.

How to Make the Right Pick?

In order to take advantage of the above-mentioned factors, we have used the Zacks Stock Screener to narrow down to stocks with solid prospects, sporting a Zacks Rank #1 (Strong Buy) along with beta greater than 2 and a Growth Style score of ‘A’.

Our research shows that stocks with a Growth Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 or Zacks Rank #2 (Buy) offer the best investment opportunities in the growth investment space.

Our first pick, Axiall Corporation (NYSE:AXLL) manufactures and markets chemicals and building products in the United States and internationally. It operates through two segments, Chlorovinyls and Building Products. This stock has a beta of 2.43.

Next on our list is Brightcove Inc. (NASDAQ:BCOV) . This company primarily offers Video Cloud, an online video platform that enables its customers to publish and distribute video to Internet-connected devices. It has a beta of 2.6.

Barracuda Networks, Inc. (NYSE:CUDA) , which designs and delivers security and data protection solutions, is also worth investing in. The company offers cloud-enabled solutions that enable customers address security threats, improve network performance, and protect and store their data. This stock has a beta of 3.33.

Another safe pick at the moment would be Commercial Vehicle Group Inc (NASDAQ:CVGI) , which designs, engineers, produces and sells various cab related products and systems in North America, Europe, and the Asia/Pacific regions.It has a beta of 2.18.