All Of The Alpha, None Of The Beta

By James Brumley | June 17, 2010 AAA

Has anybody else grown weary of the back-and-forth action (yet no net progress) from the market? It's not even an interesting challenge anymore - it has just become a nuisance.

IN PICTURES: 8 Tips For Starting Your Own Business

I may have identified a solution we all may want to embrace, as the see-saw action from the major stock indexes isn't apt to end anytime soon. It may not be the solution you want, but it's likely to be the solution you need.

Method To The Madness
When asked how they could get more out of the market, I'd venture to say that 10 out of 10 investors would say picking different (i.e. better moving) stocks is the key. That's certainly not a bad place to start; but honestly, I don't think that's the real secret to better investing. Consistency of progress - or lack thereof - is what really makes or breaks investors.

That's not to say volatile stocks can't outperform the market - they can. Volatile stocks are tough to own, though, as they have a way of jerking investors around psychologically. Buying at highs and selling at lows are just two of the pitfalls that accompany a wild equity holding. And, it takes a 100% gain to recoup a 50% dip in your portfolio. So....

Low-Beta Stocks
Rather than even attend that dance, I've found I'm getting better bottom line, long-term results from my most consistent, low-beta stocks. And let me clarify - I'm beating the overall market (relatively stress-free) with these low-beta picks, as they simply keep walking higher, even if with baby steps.

While I can't (and don't want to) share my particular holdings as suggestions, I can tell you some of the most reliable industries I've dug up over the last few months, and point out some of the most reliably progressive stocks within them.

Picks Of The Litter
Just for comparison, the S&P 500 Index is up 66.1% since the March 2009 low, and it's up 22.6% for the last 12 months. The industries below have generally outperformed the market during its time of turbulence and will provide protection in the event that another dip in stock prices occurs.

Food Distributors
The average stock in the food distributor group is up 36.3% for the last 12 months, and as part of the consumer staples business, the demand for its products remains in any type of economic environment. The no-brainer food play, as I see it, is Sysco Corp. (NYSE: SYY). It's got P/E ratios consistently in the mid-teens, a beta of only 0.70, and it manages to shrug off any problems the market throws at us.

Broadcasting
Don't get too excited about the fact that the typical broadcasting stock is up approximately 100% over the last year. That growth rate, as a percentage, is strong because these stocks started in the gutter. It would have been hard not to look good. Still, the pace is intact. The smart play here seems to be Comcast Corp. (Nasdaq: CMCSA), with a beta of 0.91, four straight EPS "beats" and a stock that's still trucking.

Railroads
Seems like ever since Warren Buffett bought Burlington Northern (NYSE: BNI) last year, the railroad industry has fallen off the radar. However, the industry has produced reasonable returns. The reliability award for railroad stock progress actually goes to Canadian National Railway (NYSE: CNI). It boasts the lowest beta among the majors (1.14) and has comparable fundamentals.

Footwear
Don't laugh! The footwear group is up 52.1% for the last 12 months - much stronger than the broad market. The pick of the litter here is Crox (Nasdaq: CROX), which is actually a high-beta stock (2.28), but all that volatility has been bullish as this stock has started to come back from the dead. CROX is well off its early 2009 lows around $1.20, but still well under its 2007 peak of just under $70. Translation - there's still tons of recovery room here. (Beta says something about price risk, but how much does it say about fundamental risk factors? To learn more, see Beta: Know The Risk.)

Boring Can Be Beautiful
Anyway, you get the idea. Boring can be beautiful, and consistency can make a huge difference to your bottom line.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

You May Also Like

Related Analysis
  1. Stock Analysis

    DISH Network to Add Netflix App on Hopper Set-top Boxes - Analyst Blog

  2. Stock Analysis

    Will Nasdaq-100 Index Gain Traction from the Reshuffling? - Analyst Blog

  3. Stock Analysis

    Charter Communications Pins Hopes on $20B Comcast Deal - Analyst Blog

  4. Chart Advisor

    How To Trade The Biggest U.S. Companies In 2015

  5. Chart Advisor

    'Tis The Season For Food And Beverage Stocks

Trading Center