Still room for improvement ?: Mark Hulbert is still optimistic about these 15 stocks – on one condition | message
Shares in this article
indices in this article
• Stock markets in bull mode
• Liquidity as an important selection criterion for stocks
• If the liquidity beta is high, shares have great potential
Although there is still no vaccine for Corona and the increasing number of cases around the world does not mean that the crisis will end soon, investors in the stock markets are grabbing both hands. There is almost nothing left of the slump in March, and various tech indices have even set new records since then. And yet the uncertainty remains high. Market participants are torn between the fear of a new lockdown and the fear of missing out.
So how should your own portfolio be designed if you want to increase your profits despite Corona? In his column for the US news portal MarketWatch, stock market expert Mark Hulbert has put together 15 stocks that he believes can drive the bull market even higher – but only on one condition.
Market liquidity as an important selection criterion for stocks
For example, the financial strategist recommends now to rely on companies that stand out particularly positively with high market liquidity. But watch out: as soon as liquidity decreases again, these companies will again feel it very much. So, as is so often the case, timing is everything.
In order to highlight the 15 companies, Hulbert consulted a 2003 study by the University of Chicago and the Wharton School of the University of Pennsylvania. In this, finance professors Lubos Pastor and Robert F. Stambaugh show how precisely market liquidity influences the movements of stocks and ultimately makes them predictable. Liquidity is defined as the ability to buy or sell a large number of shares without affecting the price. On the other hand, if liquidity falls, trading costs rise again, says Hulbert.
Calculate liquidity beta
In order to find out which stocks react particularly to more or less liquidity, the market expert has calculated the so-called liquidity beta for the companies using the formula from the study. Shares with a high beta value have great potential in a market with high levels of liquidity, but they pose a high risk if liquidity falls again. In their investigation, the professors found that stocks that had a high liquidity beta during one event will most likely also have it during the next event. This makes it possible to predict which stocks have the most to gain in times of high market liquidity.
At the time of the Corona crash on March 23, 2020, Mark Hulbert made a list of the ten stocks in the S&P 1500 that had the most gains in terms of their beta values at the end of the bull market. As Hulbert writes in his current column, these stocks would have gained an average of 70.9 percent in the period up to August 18, while the S&P 500 would have gained only 52.6 percent at the same time.
Mark Hulbert sees room for improvement in these 15 stocks
Now the stock market connoisseur has updated his list and put together the 15 stocks of the S&P 500, which should continue to grow if the market liquidity remains high: Fifth Third Bancorp, Regions Financial, CF Industries Holdings, NRG Energy, Freeport-McMoRan, Jacobs Engineering Group, Hess Corp. , T-Mobile US, IPG Photonics, Textron, National-Oilwell Varco, Take-Two Interactive Software, Newmont Mining Corp., Noble Energy and VeriSign.
However, the financial expert points out that a high beta value shouldn’t be the only criterion investors should consider when selecting stocks for their portfolios. In addition, the MarketWatch columnist regrets that there is no publicly accessible database on the beta values of companies. You have to calculate this yourself using the formula of the study mentioned above, which may not suit every investor.
Finanzen.net editorial team
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