Do High-Beta Stocks Like Carnival, Norwegian Offer Chance For Big Gains?

Investors hoping to get a boost from higher volatility plays than a plain vanilla index fund might consider an ETF that targets high-beta stocks.


Take, for instance, Invesco S&P 500 High Beta ETF (SPHB). The $1.8 billion fund, which marks its 10th anniversary next month, tracks the S&P 500 High Beta Index. The index comprises the 100 stocks from the S&P 500 “with the highest sensitivity to market movements, or beta, over the past 12 months,” according to Invesco’s website.

Beta is a way to measure a stock’s volatility vs. the overall market. So a stock with a beta above 1.0 tends to move more than the market over time. As a result, high-beta stocks are thought to be more risky but have the potential for higher returns.

Financials accounted for the biggest sector weight as of Wednesday at more than 28% of assets. Energy and consumer discretionary were next at about 18% each. Industrials and information technology were roughly 11% apiece, real estate 6% and materials 4%. Health care, communication services, consumer staples and investment companies made up the rest.

Cruise Operators Among High-Beta Stocks

Top 10 holdings include Carnival (CCL), Norwegian Cruise Line (NCLH) and Royal Caribbean Cruises (RCL) as well as MGM Resorts International (MGM), another travel-related stock.

The three cruise line stocks belong to the leisure services group, which is staging a rebound as Covid-19 cases slow down in the U.S. It jumped to No. 18 from No. 53 six weeks ago among the 197 industry groups tracked by IBD.

Carnival Cruise stock is extended from a 24.48 buy point of a cup base, according to MarketSmith chart analysis. It is testing its 10-week moving average. A solid rebound off the line could set up a chance to buy or add a smaller number of shares. Its beta is 2.15.

Cruises have been effectively shut down amid the coronavirus pandemic, hurting the companies’ profits. Miami-based Carnival, which plans to resume operations this summer, posted losses and sharply declining sales the past four quarters. Analysts expect another loss for the current quarter.

Norwegian Cruise Line, with a beta of 2.31, expects to resume U.S. departures on July 4. Norwegian stock is working on the right side of a cup with handle base. The ideal buy point sits at 33.18. On Wednesday, shares soared 10% to sail back above the 50-day line.

Goldman Sachs upgraded the cruise stock to buy from neutral with a 37 price target, citing Norwegian’s advantage over peers due to its business mix and balance sheet. Like Carnival, Norwegian saw losses and shrinking sales the past four quarters.

High-Beta ETF Near Buy Point

Other top 10 holdings include insurers Lincoln National (LNC) and Unum (UNM), and Ameriprise Financial (AMP), a brokerage.

Invesco S&P 500 High Beta is testing its 10-week line as it builds a six-week flat base. It’s about 4% away from a 72.74 buy point. A rebound off the support line can also set up an optimal chance to buy shares. The ETF charges a 0.25% expense ratio.

Follow Nancy Gondo on Twitter at @IBD_NGondo


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