Volatile Stocks Can Be Exhausting to Have in Your Portfolio. And That’s Why You Should Avoid These Three.
What a difference a year makes. A year ago, stocks were at the tail end of one of the worst holiday market corrections in history, and volatility was through the roof. But Christmas Eve 2018 was the nadir; since then, calm has been restored, and people have been buying stocks again. But you should still avoid the most volatile stocks.
When times are good, like now, there are too many good stocks out there to risk taking on a volatile stock. It’s not worth the risk. So which stocks should you avoid at all costs as we enter a new year?
To screen for the most volatile stocks today, I looked for large-cap stocks with a beta of at least 2—meaning they’re twice as volatile as the market. And I stuck with U.S. companies since, as with small-cap stocks, volatility and unpredictability are more common in emerging market stocks.
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Because beta compares the behavior of a given stock with the market itself, these stocks wild and unpredictable – two things you can easily steer clear of in this pleasantly docile environment. Until they settle into some sort of predictable pattern, I’d give these up-and-down stocks a wide berth.
So, without further ado, here are the three most volatile stocks today.
Volatile Stock #1: Square (SQ)
Formerly a Cabot Wealth favorite, Square has fallen on hard times of late.
For the year, it’s up, but only about 12%, way less than the 30% jump in the S&P 500. And after peaking at 82 in late July, it has since plummeted as low as 56 (it currently trades at 62). And it’s been on steady decline for the past month, when the rest of the market has been decidedly up. I still like the story – a mobile payments company that caters to small businesses by turning smartphones or iPads into electronic cash registers – but the company still struggles to turn a profit, and the stock may have gotten a bit overcooked after a huge run-up in 2017 and 2018 (which Cabot Stock of the Week analyst Tim Cook turned into a 195% profit for those who got in early on his February 2017 recommendation).
Here’s what a chart of SQ looks like over the past year:
Not a great trend, at least not for the past five months. Long term, Square stock is likely still a good investment (though not as good as it was when Tim recommended it three years ago). But right now, with a beta well north of 3.0 and no real signs of life since July, SQ is one of the most volatile stocks out there.
Volatile Stock #2: Devon Energy (DVN)
Few sectors have been hit harder than energy stocks these last couple years. On the one hand, that means there are a lot of bargains in the energy space – indeed, our Crista Huff currently recommends several energy stocks in her Cabot Undervalued Stocks Advisor portfolio. But Devon Energy isn’t one of them. It’s up 16% in the last year, but down 37% in the last two years. And the numbers don’t look great; analysts expect declines in both the top and bottom lines for Devon Energy this year. Throw in a beta of 2.30, and a chart that looks like this, and I wouldn’t touch it…
Volatile Stock #3: Freeport-McMoran (FCX)
We’re generally not big on mining companies here at Cabot, and Freeport-McMoran is no exception. The reasons are simple: miners are too dependent on the prices of the precious metals they mine, making them unpredictable. Though the price of copper—which Freeport-McMoran mines heavily—has been trending up of late, it remains well below its 2018 highs. And so does FCX stock. It’s up 24% this year, but down 29% in the last two, with a beta of 2.5. Even though the stock has been on a two-month uptick, it’s not worth the investment yet.
There are just too many ups and downs on that chart to trust that this latest surge is sustainable.
Bottom Line on the Most Volatile Stocks Today
As SQ in particular reveals, there’s a thin line between being a good growth stock and a stock that’s too volatile to trust. A little over a year ago, SQ was one of the best performing stocks on the market, and was a regular recommendation in our Cabot Top Ten Trader momentum-stock advisory, appearing four times in 2017 and twice in 2018. Since then, it’s been a bumpy ride. The market that has done a nice job getting back up off the late-2018 mat. And that means it’s simply not worth having volatile, unpredictable stocks in your portfolio.
A few months (or perhaps even weeks) from now, a couple of these stocks may have demonstrated enough momentum to be worth the short-term investment. For now, though, they’re among the most volatile stocks today. And that means they’re not worth the risk.
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!
*This post has been updated from an original version, published in 2017.