Stocks With Dependable Earnings

Just about all stock investors want to minimize risk, but few agree on how to measure it. Some use the term "beta," instead of risk, as though naming something with a Greek letter adds credibility. Most finance web sites (including this one) publish betas that are based on past stock price volatility relative to a benchmark, but knowing that a stock's price was more or less sclerotic than the broad market over the past several years isn't necessarily evidence that the company is risky or safe.

Microsoft, Darden Restaurants and General Mills have exhibited stability of a different kind. Over the past 20 quarters, their earnings have been relatively steady. In math jargon, the standard deviation of their earnings during that stretch, when divided by the mean, results in a low coefficient of variation. Think of that as an earnings stability score where lower is better. The median for S&P 500 members is 0.53. Scores for the companies below are no higher than 0.35.

Source: SmartMoney

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