If you’re going to put up with off-the-charts risk from an S&P 500 stock — it had better pay off. Surprisingly it often doesn’t.
Just 10 S&P 500 stocks with 50% higher long-term volatility than the index, including technology darlings Nvidia (NVDA) and Advanced Micro Devices (AMD) plus consumer discretionary plays like Lennar (LEN) and D.R. Horton (DHI), actually generated gains this year to make the risk worth your while.
Nearly a fifth of stocks have five-year betas of 1.5 or higher, which means their ups and downs are 50% more extreme than the S&P 500, says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. And yet, just 10 of those are up 20% or more this year. The S&P 500 itself is up 3.4% this year.
If you’re taking outsize risk on S&P 500 stocks, make sure you’re getting compensated for it. “It seems the stock market roller coaster ride is flattening off its first major dip, but that sinking feeling in your stomach is far from over,” said Edward Moya, senior market analyst at Oanda. And that’s why you want to watch IBD’s Leaderboard for the stocks that deliver.
Risk Isn’t Paying Off For Most Volatile S&P 500
If you’re loaded up with risky S&P 500 stocks, you’re mostly getting taken for a ride. Of the 102 S&P 500 stocks with a five-year beta of 1.5 or higher, roughly 80% have lost value this year.
And some by quite a bit. Nearly 20% of the riskiest stocks are still down 50% or more this year. And half of them have lost a quarter, or more, of their value this year.
That’s not worth it. So where does risk pay off?
S&P 500 Chipmakers Worth Their Weight In Risk
Chipmakers are among the riskiest stocks you can buy. Not only are the companies’ fortunes closely tied to the economy, their booms and busts are intense.
Just consider the SPDR S&P Semiconductor ETF (XSD), which owns semiconductor companies’ shares. In just the past 52 weeks, the ETF has swung 50% from its high to its low price. That’s the kind of volatility few investors can — or should — tolerate.
Nvidia is a case in point. Its the company that makes high-end computing chips used in graphical visualization and video games. The stock has a relatively high five-year beta of 1.52. And shares swung a jaw-dropping 70% from its high in the past 52 weeks to the low.
But you won’t hear many investors complaining. Nvidia’s shares are up nearly 107%, just this year. And thanks to solid fundamentals, it carries an IBD Composite Rating of 99. That means it outranks 99% of all other stocks. Do you know what to look at with Nvidia stock?
It’s a similar story at peer chipmaker AMD. It’s even riskier than Nvidia with a five-year beta of 2.28. But it’s also a leading stock with a 99 IBD Composite Rating. The high-risk stock is up 67% this year, delivering a 19-fold better gain than the S&P 500.
Homebuilders Show They’re Built To Last: S&P 500
Homebuilder stocks are highly volatile. They’re at the mercy of economic cycles and interest rates. But they’re also paying off for investors.
Unlike other industries that came into 2020 highly leveraged, many homebuilders still have manageable debt loads. They learned their lesson from the 2008 housing crash. Additionally, home sales are booming. More people are working from home and willing to pay up for their dwelling. Also, low rates make a new home more affordable.
Take Lennar. The homebuilder’s stock has a high five-year beta of 1.63. And swings can be wild. But it’s outperforming 95% of all stocks as the 95 IBD Composite Rating shows. Just this year, Lennar shares are up nearly 39%, making the S&P 500’s gain look paltry.
Pain with no gain is a bad idea in investing. But with some S&P 500 stocks, at least, you get both this year.
High-Risk S&P 500 Stocks That Pay Off Big
|Company||Ticker||Beta||Stock YTD % Ch.||Sector||Composite Rating|
|Advanced Micro Devices||(AMD)||2.28||66.5%||Information Technology||99|
|L Brands||(LB)||1.66||54.5%||Consumer Discretionary||74|
|D.R. Horton||(DHI)||1.71||35.3%||Consumer Discretionary||98|
|Fortune Brands Home & Security||(FBHS)||1.78||26.4%||Industrials||94|
|Best Buy||(BBY)||1.65||22.0%||Consumer Discretionary||96|
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
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