What are we looking for?
For those investors buying stocks, which ones should outperform the indexes in a rising market, and for those investors shorting stocks, which ones should perform worse than the indexes in a declining market.
My colleague Rob Belanger and I isolated North American companies greater than $1-billion in market capitalization.
Beta is the measure of the volatility of a security in comparison to the market as a whole. A beta of 1 indicates that the security’s price will move with the market. A beta of less than 1 means the security will be less volatile, and a beta of more than 1 denotes companies that are more volatile than the market. For our screen we only used companies that had a minimum beta of 2.45, meaning these companies, theoretically, should move 145 per cent more than the market.
The 30 day RSI (relative strength index) is a momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine oversold and overbought conditions. The RSI ranges from 0 to 100. An asset is deemed to be overbought as the RSI approaches 70 indicating the asset may be due for a pullback. On the contrary, if the RSI approaches 30 the asset may be oversold and due to rise.
The short interest ratio is a sentiment indicator derived by dividing the amount of stock that is sold short by the average daily volume of a stock. It determines how long it will take short sellers, in days, to cover their entire position if the price of a stock begins to rise. Generally, a short position is considered a bearish position.
The companies in our screen had to have a minimum 10 per cent total return in the past 12 months.
What did we find?
While we screened for North American companies, no Canadian firms made our list.
Tesla Motors Inc. manufactures luxury electric vehicles. The company has the highest beta on our screen with a RSI of 65. The stock is extremely volatile and is approaching overbought levels.
Not far behind is biotech company InterMune Inc. The RSI is 73, which is the largest on our screen, the beta is 3.77, and the short interest ratio is 10.8.
According to the RSI, the most oversold company is Polycom Inc., which provides video, voice and infrastructure services, followed by home-builder Lennar Corp.
The beta and RSI will pinpoint oversold or overbought volatile companies. As always, investors should do more research, or contact an investment professional.
North American stock volatility vs. the market
|PDC Energy Inc.||PDCE-Q||54.04||1.64|
Figures in U.S. dollars. Source: Bloomberg, Wickham Investment Counsel Inc.
|PDC Energy Inc.||PDCE-Q||54.04||1.64||2.70||108.17||53||13.2|
|USANA Health Sci.||USNA-N||78.60||1.06||2.60||78.96||60||39.6|
|Janus Capital Group||JNS-N||9.33||1.77||2.55||41.43||54||7.0|