Beta is a measurement of market risk or volatility that indicates how much the price of a stock tends to fluctuate up and down compared to other stocks. It is a statistical measure that helps investors understand the risk associated with a particular stock. Beta is calculated using regression analysis, a set of statistical methods used for the estimation of relationships between one or more independent variables, and is represented by the Greek letter ‘ß’. Beta gives a sense of the stock’s risk compared to that of the greater market.
A beta of 1 indicates that the security’s price tends to move with the market. A beta greater than 1 indicates that the security’s price is more volatile than the market. A beta of less than 1 means it tends to be less volatile than the market. For example, if a company has a beta of 2, it means that it is two times as volatile as the overall market.
Benefits of Investing in Negative Beta Stocks
A negative beta is a rare occurrence, but it indicates an inverse relationship between the stock’s price and the market. In other words, when the market declines, the stock’s price tends to rise, and when the market rises, the stock’s price tends to fall. A negative beta is highly unlikely, but it can occur in certain situations. For example, some investors argue that gold and gold stocks should have negative betas because they tend to do better when the stock market declines. This is because gold is often seen as a safe-haven asset, and investors tend to flock to it during times of market uncertainty.
In more detail, a negative beta means that the stock’s price is negatively correlated with the market. This means that when the market rises, the stock’s price tends to fall, and when the market falls, the stock’s price tends to rise. This can be beneficial for investors who are looking to diversify their portfolios and reduce their overall risk. However, it’s worth noting that a negative beta is not always a guarantee of success, and investors should still do their due diligence before investing in any stock.
While negative betas are rare, there are some examples of stocks that have exhibited negative beta characteristics. For example, during the 2008 financial crisis, the price of gold rose significantly while the stock market declined. This is an example of a negative beta, where the price of gold moved in the opposite direction of the market. Similarly, some defensive stocks like consumer staples and healthcare stocks tend to have negative betas because they are less affected by market fluctuations.
Tom Lee Expects Market Rally to Continue After Election
Tom Lee, Managing Partner and Head of Research at Fundstrat Global Advisors shared his market insights in an interview on CNBC on October 12, as the S&P 500 reached a new high, breaking above 5,800 for the first time ever. Despite the current bull run, which marks its two-year anniversary, Lee expressed caution about the market as the month progresses.
Lee advised his clients to “buy the dips” but thinks investors are waiting for the outcome of the presidential election before making major moves. He believes that once the election is over, the market will rally, with a target of around 6,000 for the S&P 500.
According to Lee, there are several factors supporting a potential market rally. Firstly, the Federal Reserve is taking a dovish stance, which is expected to continue supporting the market. Secondly, the economy looks healthy, and Lee does not think a recession is on the horizon.
Lee also pointed out that investors who have been cautious for the past two years are starting to realize that the $6 trillion in cash on the sidelines and the low levels of margin debt need to be put to work at a time when the Fed is supporting the market.
However, Lee acknowledged potential headwinds that could impact the market. One of the concerns is valuation, with the S&P 500 trading at a price-to-earnings (P/E) ratio of around 21.5, which is above its historical average. Some investors may view this as a sign that the market is overvalued.
Another concern is the rise in yields, which could make bonds more attractive to investors and potentially draw money away from the stock market. Although Lee noted that yields are up for the right reasons, as the economy is growing, he acknowledged that they are still higher than expected after the Fed’s 50-basis-point rate cut.
Finally, Lee addressed the possibility of slower and smaller rate cuts from the Fed, which could impact the market. However, he believes that the Fed’s goal is to normalize interest rates back towards neutral, as inflation pressures are ebbing. Lee thinks that this is a positive development, as it suggests that the Fed is confident in the economy’s resilience.
Beta is a useful measure of a stock’s volatility and risk. A negative beta indicates an inverse relationship between the stock’s price and the market, which can be beneficial for investors looking to diversify their portfolios. With this in context let’s look at the 10 biggest stocks with negative beta to consider.
An asset manager studying data on a stock market monitor to make informed investment decisions.
Our Methodology
To compile our list of the 10 biggest stocks with negative beta to consider, we used the Finviz and Yahoo stock screeners to find the largest companies with a beta of less than zero. We then narrowed our choices to 10 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their hedge fund sentiment, as of the second quarter.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Biggest Stocks with Negative Beta to Consider
10. Soleno Therapeutics (NASDAQ:SLNO)
Number of Hedge Fund Investors: 29
Beta: -1.44
Market Cap as of October 13: $2.13 Billion
Soleno Therapeutics (NASDAQ:SLNO) is a biotech company that focuses on rare diseases, particularly Prader-Willi Syndrome (PWS) hyperphagia. PWS is a genetic condition that creates insatiable hunger in patients, severely affecting their quality of life. There are no approved treatments for this condition, but Soleno Therapeutics’ (NASDAQ:SLNO) leading drug candidate, DCCR (diazoxide choline), has effectively reduced hunger in PWS patients.
DCCR has a unique mechanism of action that targets PWS hyperphagia while preserving lean mass. This potentially extends its use beyond PWS to weight loss, enhancing the company’s market prospects. The FDA has consistently shown a favorable attitude towards DCCR, and its date for submission is set for December 27.
If DCCR receives regulatory approval, it will allow Soleno Therapeutics (NASDAQ:SLNO) to tap into a potentially large market cap with little competition. DCCR would target the flagship hyperphagia symptom of PWS, which has no currently approved treatments. Soleno Therapeutics (NASDAQ:SLNO) estimates DCCR’s total addressable market could be over $2.0 billion, with roughly 10,000 patients identified in the US alone that could benefit from its therapy. The recent news regarding the FDA not requiring an advisory committee meeting is exceedingly bullish, suggesting that regulators are confident about Soleno Therapeutics’ (NASDAQ:SLNO) DCCR data.
Soleno Therapeutics’ (NASDAQ:SLNO), DCCR, appears to be an effective and well-tolerated treatment for PWS patients. DCCR is on the cusp of becoming the first approved treatment for this condition, which bodes well for its market adoption prospects. Industry analysts are bullish on the company’s stock price and have a consensus Buy rating at a target price of $72.13, which implies a 27.39% increase from its current level.
9. Madrigal Pharmaceuticals (NASDAQ:MDGL)
Number of Hedge Fund Investors: 30
Beta: -0.44
Market Cap as of October 13: $4.65 Billion
Madrigal Pharmaceuticals (NASDAQ:MDGL) is a clinical-stage biopharmaceutical company specializing in developing therapies for cardiovascular and liver diseases. The company’s primary focus is on non-alcoholic steatohepatitis (NASH), a condition with significant unmet medical needs.
In March, the FDA granted accelerated approval to Madrigal Pharmaceuticals’ (NASDAQ:MDGL) NASH therapy, Rezdiffra, making it the first and only approved therapy for NASH, a condition that affects millions of people worldwide. This approval marks a significant milestone for the company. According to management, the commercial launch of Rezdiffra has been successful, driven by high patient demand for the drug.
In Q2, Madrigal Pharmaceuticals (NASDAQ:MDGL) exceeded expectations and reported revenue of $14.6 million, all from sales of Rezdiffra. The company’s selling, general, and administrative (SG&A) costs, surged to $105.4 million, due to launch activities of the therapy. As of June 30, more than 50% of people covered by health insurance in the United States have coverage for Rezdiffra. This widespread coverage ensures that many patients have access to this life-changing treatment. Additionally, less than 5% of Rezdiffra-covered lives require a biopsy, making it an attractive option for patients who want to avoid invasive procedures.
Madrigal Pharmaceuticals (NASDAQ:MDGL) has also submitted a regulatory filing in the European Union, seeking approval for Rezdiffra. A final decision is expected in mid-2025, which could expand the drug’s market reach and increase its potential sales.
The company is conducting several ongoing studies to confirm the safety and efficacy of Rezdiffra. The pivotal phase III MAESTRO-NASH study, which provided the data for the drug’s accelerated approval, is ongoing as an outcomes study. In addition to the MAESTRO-NASH study, Madrigal Pharmaceuticals (NASDAQ:MDGL) is conducting two more phase III studies to further evaluate the safety and efficacy of Rezdiffra.
Madrigal Pharmaceuticals’ (NASDAQ:MDGL) commitment to establish Rezdiffra as the standard-of-care treatment for NASH could lead to its increased market potential and boost sales as a leading treatment option for NASH. With a consensus Buy rating from industry analysts, the stock has a target price of $362.53, which represents a 51.46% upside potential from its current level.