- High beta stocks move quicker than the market so in a broad rebound they’ll improve fast.
- AMD (AMD) is very cheap right now depending on who you believe.
- Albemarle (ALB) is expected to grow revenues by 33% which gives it massive potential when EV stocks return.
- Alcoa (AA) is an aluminum producer that might not be fairly valued as some have suggested.
Beta measures the volatility of a given stock relative to that of the broader market, usually measured by the S&P 500. In other words, it tells investors whether a given stock is volatile or not. Market beta is always 1. A stock with a beta higher than 1 is said to be highly volatile.
That means that it moves quicker than the market. A stock with a beta of 1.5 will move up or down 50% quicker than the market. The same is true of stocks with a beta lower than 1 — such stocks move up or down more slowly than the market.
However, the markets aren’t performing particularly well in 2022. The S&P 500 has dropped from 4,796.56 on January 3rd to around 4,280 currently. So some investors are looking to find stocks with high beta in an attempt to time the market. Such investors believe that once the markets reach an inflection point, those high beta stocks will rise more rapidly than the broader. Gains will follow and those investors will be in prime position.
That raises the question: which high beta stocks are worth investing in?
| AMD | Advanced Micro Devices | $90.45 |
| ALB | Albemarle | $195.17 |
| AA | Alcoa | $65.30 |
AMD (AMD)
Advanced Micro Devices (NASDAQ:AMD) stock carries a five-year monthly beta of 1.81 according to Yahoo! Finance. That high beta measure has meant that AMD stock has fallen precipitously along with the S&P 500 year-to-date. In fact, it has fallen from a price just above $150 to begin 2022, to $88 currently.
As my colleague Will Ashworth recently wrote, that poor performance combined with an upcoming earnings report that some speculate could be very good, means AMD stock could rise quickly. He speculates that if AMD performs well it should quickly rise to $100 price levels.
On top of that, the stock carries an average target price above $145. Over the last three months, the analysts that cover the stock have given it an increasing share of ‘buy’ ratings.
One of those analysts, Raymond James Financial’s (NYSE:RJF) Chris Caso is particularly optimistic. He believes that Advanced Micro Devices is in better position than its competitors because it has less cyclical exposure and stronger secular catalysts.
So, when its stock bounces back, it is expected to bounce back particularly quickly.
Albemarle (ALB)
For most of 2021, the investment proposition for Albemarle (NYSE:ALB) stock was related to its position as a lithium producer. Lithium is an important component of electric vehicle batteries. So, Albemarle garnered lots of headlines as EV stock valuations reached record highs. However, EV stocks underwent a strong reversal as rising inflation rates took the wind out of the sails of growth stocks beginning in late 2021.
That decline hasn’t spared Albemarle, which is dropped from $235 to under $200 — but here’s the rub: Albemarle carries a five-year monthly beta of 1.56. That means that once EV stocks come back into fashion Albemarle should come back into fashion too, and quicker.
And there’s plenty of reason to believe Albemarle will return. In 2021 the firm recorded $3.3 billion in revenues. In 2022, the firm is expected to make somewhere in the range of $4.4 billion in sales according to Yahoo! Finance.
When the rebound occurs, investors will be happy because there’s plenty of upside in ALB stock. In fact, the high analyst target price for ALB stock is $307. It currently trades for under $195 and carries an average target stock price above $248.
Alcoa Corp (AA)
Alcoa Corp (NYSE:AA) is a company that produces aluminum. Like all companies, Alcoa Corp has had to deal with increasing costs of inputs. Those increasing costs have arguably been well handled by the firm.
In its most recent earnings report, Alcoa reported earnings per share of $3.06 where Wall Street was expecting $2.88. That implies that Alcoa was able to control the costs leading to better than expected earnings per share. However, Alcoa fell short of revenue expectations posting $3.3 billion in sales where $3.5 billion was anticipated.
That revenue miss caused AA stock to fall off a cliff, dropping from $86 down to $67 in a matter of days.
But Alcoa can bounce back quickly. For one, Alcoa carries a five-year monthly beta of 2.3. That means it can rise roughly 130% quicker than the broad market. But in order to believe that Alcoa will actually rebound, investors need to be optimistic about two things; first, the precipitous drop in AA shares was overdone. Second, prices for inputs like the aluminum that Alcoa produces aren’t cooling. Those prices are at lows for the prevailing few months, however. That means right now might not be the best time to invest in Alcoa. However, if there is any signal that aluminum prices could spike, Alcoa will rise very fast with its 2.3 beta.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
