Hot Stocks With Big Potential Gains Help High-Beta Play Beat The Market

Investors hoping to beat the broader market might take a look at funds that own hot stocks that are riskier but could deliver bigger returns.


Invesco S&P 500 High Beta ETF (SPHB) is one such candidate. The $2.1 billion fund is up nearly 34% this year, more than double the S&P 500’s 15% return. And it’s beaten the benchmark index over the past three and five years, too.

SPHB, which marked its 10th anniversary last month, tracks the S&P 500 High Beta Index. The index comprises the 100 stocks from the S&P 500 “with the highest sensitivity to market movements, or beta, over the past 12 months,” according to Invesco’s website. Both the fund and index are rebalanced and reconstituted four times a year.

Beta is a way to measure a stock’s volatility vs. the overall market. So a stock with a beta above 1.0 tends to move more than the market over time. As a result, high-beta stocks are thought to be more risky but have the potential for higher returns.

Information technology made up the biggest sector weight at nearly 21% of assets. Financials, consumer discretionary and energy were next at about 19% each, followed by 9% in industrials and 7% in real estate. Materials, communication services and health care made up the rest.

Energy Among Hot Stocks

Occidental Petroleum (OXY) has surged nearly 90% this year as oil prices and demand rise. The company’s weak 20 Earnings Per Share Rating reflects a loss in 2020. But a 93 Relative Strength Rating puts Occidental in the top 7% of all stocks. Shares are extended from a 30.15 buy point of a cup with handle.

Diamondback Energy (FANG), also in the top 10, is trading at its highest level in nearly two years. It’s well extended past an 87.69 buy point of a cup with handle, according to MarketSmith chart analysis. A 98 Composite Rating puts it among the hot stocks in the U.S. oil exploration group.

Solar power tech stock Enphase Energy (ENPH) leads IBD’s solar group with a 94 Composite Rating. The company has bounced back from two quarters of flat to lower earnings and revenue with 26%-47% profit and sales gains in Q4 and Q1. Enphase, up 4% this year, has spent most of 2021 consolidating.

Tesla, Cruise Stocks In The Mix

Another notable hot stock in the top 10 is Tesla (TSLA), which is expected to announce Q2 deliveries soon. Tesla stock is trading tightly after clearing a trend line that set up an aggressive buy point near 675. It’s also shaping the right side of a base. The electric-vehicle giant is an IBD Leaderboard stock.

Caesars Entertainment (CZH), MGM Resorts (MGM), Norwegian Cruise Line (NCLH) and Royal Caribbean Cruises (RCL) also make the top 10. Leisure stocks have rebounded as Covid-19 cases abate in the U.S.

The Invesco ETF has been finding support along its 10-week moving average after clearing the 72.74 buy point of a flat base in late April. That offers a chance for investors to buy or add shares. SPHB charges a 0.25% expense ratio.

The ETF’s average annual returns over the past three and five years are 23.1% and 23%, according to Morningstar Inc. The SPDR S&P 500 Trust (SPY) is up 18.5% and 17.5% for the same periods.

Follow Nancy Gondo on Twitter at @IBD_NGondo


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