20 High-Volatility Stocks for the Next Market Turn

If there has been one constant during the first few months of 2022, it is that volatility has returned with a vengeance. And yet, as counterintuitive as it sounds, investors should think twice before ditching high-volatility stocks from their portfolios.

This is because all those high-volume stocks that do enormous damage to your returns in a down market are likely to be your biggest returns in a up market.

In fact, if stocks’ mid-March pivot really marks a new trend, one in which the major indices manage to continue rising, many of their worst market laggards would need to become their best leaders to beat the market.

Volatility cuts both ways

Taking high volatility stocks is easier said than done. Changing asset prices are generally contraindicated in getting a decent night’s sleep. (In any case, investors are often told to gobble up low volatility stocks to keep your sanity). Volatility is also an indicator of risk. Increases the chances of buying high and selling low.

But strategists say the rollercoaster price action isn’t going away any time soon, which means investors need to learn to live with it, at least for now.

Increased volatility “is the name of the game,” says David Rosenberg, chief economist and strategist at Rosenberg Research. And his peers, both bears and bulls, pretty much agree.

On the one hand, even if the uncertainty caused by the war in Ukraine was miraculously resolved overnight, the The Fed’s increasingly aggressive stance on inflation must continue to create waves.

“If the markets survive Putin, they will still have to deal with [Fed Chair Jerome] Powell,” writes Richard Saperstein, chief investment officer at Treasury Partners, a New York City wealth manager with $9 billion in assets under management. Market volatility.”

That said, volatility is not the same thing as returns. Returns are what you get; volatility is the way to get there.

One pernicious aspect of increased volatility is that it fuels investors’ unfortunate tendency to focus on short-term market noise at the expense of longer-term signals.

Maybe that’s why 2022 so far feel like a mess, even if the tape shows that it was really nothing of the sort:

stock chart to date

Through March 25, the Nasdaq Composite fell 9.4% year-to-date (and just correction territory, or 10.5% less, from its peak on January 3). The S&P 500 and the Dow Jones Industrial Average were down 4.7% and 4.7%, respectively.

Surely that’s a bad start to any year. None of it has been fun. But we’re hardly talking about a drop in stocks here.

More importantly, markets have reversed trend since March 14, the day the Fed announced the first of what is expected to be a series of interest rate hikes. Take a look at how the major indices have performed since Powell pulled the trigger on the Fed:

stock chart since 031422

“The volatility we’ve seen in the markets since the beginning of the year has continued,” says Michael Reinking, senior market strategist at the New York Stock Exchange. “It just cuts in the opposite direction.”

High volatility stocks for the next market turn

Past performance, as we all know ad nauseam, is not indicative of future returns. But if past is anything like prologue, investors really should want plus exposure to high volatility stocks in a diversified portfolio.

Buy-and-hold investors probably shouldn’t try this at home, but active or tactical investors and traders may want to try adding some quality, high-volatility stocks to their positions.

To find the best stocks For the situation, we analyzed the S&P 500 looking for stocks with the highest betas. To simplify a bit, beta measures how a stock is moving relative to the S&P 500. It’s a volatility metric and a kind of indicator of risk.

The S&P 500 has a beta of 1.0. Any stock trading with a beta greater than 1.0 can be said to be more volatile than the market as a whole. In practice, that means it tends to outperform the benchmark when stocks are rising and underperform when stocks are falling. A stock with a beta of, say, 2.0 can be considered twice as volatile as the S&P 500.

Note that beta is looking backwards. Measures how well a stock has traded relative to the S&P 500 in the pastcommonly for a period of one, two or five years.

For that reason, we scan the S&P 500 for stocks with the highest one-year betas or the most volatile names of the recent past. We then narrowed our list down to high-volatility stocks with the strongest buy recommendations from industry analysts.

This is how that process works. S&P Global Market Intelligence surveys analyst calls for stocks and rates them on a five-point scale, where 1.0 equals strong buy and 5.0 is strong sell. Any score equal to or less than 2.5 means that analysts, on average, rate the stock at Buy. The closer a score is to 1.0, the stronger the consensus buy recommendation.

Take a look at the following table of the 20 S&P 500 stocks with the highest betas and highest conviction buy recommendations from Wall Street analysts. Among the highlights:

  • nvidia (NVDA, $276.92), with a beta of 2.4, has been much more volatile than the broader market over the last 52 weeks. No wonder there: The semiconductor stocks is emblematic of the way investors dumped last year’s expensive growth favorites in favor of value names in 2022. NVDA outperformed the S&P 500 by a wide margin last year, but then lagged far behind the index for much of 2022. At its lowest point, NVDA lost nearly 28% year-to-date. March 14. since roaring back to close its gap with the S&P 500, and now trails just one percentage point. Analysts give the stock a consensus buy recommendation, with high conviction.
  • Etsy (etsy, $132.32) has traded as high as $307.75 in the past 52 weeks and as low as $109.38. Stocks are down more than a third so far this year, but analysts say they are poised to reverse the trend and deliver market-beating returns. Global e-commerce platform for jewelry, apparel, home décor, and other craft items earns a high-conviction consensus buy recommendation. “As a leader in the craft niche market, we believe Etsy has carved out a favorable competitive position with formidable barriers,” writes Stifel analyst Scott W. Devitt (Buy). “The company is emerging from a transition period in which operations were streamlined, resources refocused and a number of initiatives were implemented to reinvigorate growth.”
  • KLA Corporation (KLAC, $366.44), like any company involved in the semiconductor industry, has been affected by global chip shortages, supply chain failure, and geopolitical uncertainty. But KLAC continues to build on its industry-leading market share in process control and metrology, says Argus Research analyst Jim Kelleher (Buy). “With demand strengthening and now exceeding pre-pandemic production levels in many markets, KLAC shares look attractive at current levels,” the analyst writes. The Street largely agrees, giving KLAC a consensus recommendation of Buy, with strong conviction. In fact, analysts forecast that the company will deliver average annual earnings-per-share growth of 16% over the next three to five years. KLAC might offer investors a bumpy ride, but the potential for outperformance cannot be denied, bulls say.

Here is the full list of high volatility stocks:

Company NameHeartone year betaAverage broker recommendation
nvidiaNVDA2.431.62
Etsyetsy2.361.63
alignment technologyALGN2.181.73
KLA CorporationKLAC2.061.79
TeradinoHAVE1.951.70
DexComDXCM1.891.40
bath and body workBBWI1.761.48
service nowNOW1.751.40
AdobeADBE1.721.63
caesar entertainmentCZR1.661.29
PayPal HoldingsPPPL1.651.75
Monolithic power systemsMPWR1.581.31
BiotechnologyTECHNOLOGY1.571.64
Metaplatformsfull board1.561.66
micron technologyMU1.561.51
dr hortongoat1.561.67
synopsisSNPS1.521.57
to senseINTU1.491.57
salesforce.comcrms1.471.50

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