Most volatile stocks to watch

Volatility increases as coronavirus crisis unfolds

The unprecedented impact of the coronavirus and the measures introduced by governments to try and contain it has injected levels of volatility into financial markets not seen since the financial crisis. Whilst volatility, as measured by the VIX, has reduced considerably since peaking in March it still remains well above pre-coronavirus crisis levels.

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Volatility is both a friend and an enemy for traders. Volatility is key if traders are to find opportunities in the market, but it also makes it much more uncertain and moves the market at a much faster pace.

The coronavirus is the key drive of volatility at the moment, but there are many stocks that were proving consistently volatile well before the outbreak was recognised earlier this year. As a result, we have looked at the most volatile stocks from the FTSE All-Share, S&P 500 and the MSCI AWCI index over the last 360 days and focused on the ones that have remained particularly volatile over the last month.

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How to trade volatility

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2. Type the name or the ticker/code of the stock you want in the search bar and select it
3. Choose your position size
4. Click on ‘buy’ or ‘sell’ in the deal ticket
5. Confirm the trade

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Most volatile UK stocks: FTSE All-Share

Below is a list of the most volatile stocks within the FTSE All-Share based on the standard deviation of the share price for the previous 360 days. Some sectors make a noticeable appearance, such as mid-cap oil providers Tullow Oil and Premier Oil, lenders Funding Circle and Amigo Holdings, and clothing retailers like Ted Baker, N Brown and Superdry.

^{Source: Bloomberg}

Tullow Oil and Premier Oil

Tullow Oil and Premier Oil, two of London’s leading mid-cap oil companies, have been caught out by the crash in oil prices as demand falls in an already over-supplied market due to the coronavirus outbreak.

Although the price of Brent crude, which most of them produce, did not suffer as severe a fate as WTI it did still plunge below $20 per barrel. Whilst Brent has also bounced back somewhat, they remain below $40 and well below what most of these mid-cap producers need to operate profitably and protect returns.

The problem for both stocks is that they are lumbered with large amounts of debt and, if they can’t profitably produce then there is a threat that they can’t afford to make the repayments they need – let alone continue developing new growth projects or paying shareholders.

A recovery in oil prices is what they both need but, in the meantime, they have both had to take action to shore up their balance sheets and prepare for lower oil prices.

Tullow has managed to secure some extra headroom for its lenders, slashed costs and expenditure, and said it is aiming to produce oil at a breakeven price of $35 per barrel in 2020. It has also sold its Ugandan assets to bolster its cash by $500 million and it is hoping to make that sum again through further asset sales.

Premier Oil has an additional problem to battle. It agreed to splash out $871 million on assets to expand its operations in the UK North Sea in January and, while it is still committed, some believe this doesn’t make as much sense as it did at the start of the year considering the tough outlook for oil prices.

Premier Oil said it was refinancing itself alongside the acquisition, but Asia Research & Capital Management, one of its biggest lenders, has said the deal was agreed based on prices that were ‘unrealistic at the time and even more unrealistic today’.

Funding Circle and Amigo Holdings

Peer-to-peer lender Funding Circle and guarantor loan provider Amigo HoldingsAmigo Holdings have been among the most volatile UK stocks over the last year, and that has increased markedly over the last month.

Funding Circle struggled in 2019 as it delivered top-line growth that was less than half of what it originally expected, primarily as economic uncertainty spawning from Brexit and the election reduced demand for loans from small and medium sized businesses. Growth has improved since then and it has continued to move toward profitably but there will now be concerns over demand as the coronavirus takes its toll.

Amigo looks like it could experience an even bigger problem. It provides loans to credit-poor customers on the basis that someone else guarantees to make the repayments if they fail to do so – but, with people losing their jobs and economic uncertainty rising – Amigo said in March that it had decided to ‘temporarily pause all new lending activity’ except to key workers in ‘exceptional circumstances’.

This means there will be a lack of revenue coming in the door while the risk that existing loans won’t be able to be paid back in the current climate has risen dramatically. It was already in trouble after coming under heavy criticism from regulators and put itself up for sale in January. James Benamor, who owns 61% of the company, also launched a scathing attack by calling for the removal of the board in April.

Ted Baker, N Brown and Superdry

Ted Baker was struggling before coronavirus came around and paralysed the retail sector. It launched a plan to address lacklustre growth and inefficiencies in the business but it has had to shut all of its outlets – which account for 68% of total revenue – when the lockdown began.

Its online sales have grown as a result but they will not be enough to prop up the entire company and it, like so many other retailers, remains at risk depending on how quickly they can reopen.

N Brown, which owns brands JD Williams, Simply Be and Jacamo, is in a better position than most considering its online presence, but it too has seen a huge reduction in demand after lockdown was introduced.

Despite a slight recovery, sales in the six weeks to May 19 were down 25%. Its new homeware range has helped a 74% rise in sales but apparel sales, the driver of the company, remain 48% lower.

It said its ‘severe but plausible’ scenario could see sales down 50% until June, 45% in July and August and 30% for the rest of the year – and warned its collections from customers who pay using credit could also be affected.

Superdry is another retailer that has had to shut up shops and try to meet a spike in online demand, but its online sales represent only a small amount of overall revenue. It has cut costs and decided not to pay a dividend to save cash – but it does boast a net cash position, something most of its peers only wish they had right now.

Cineworld and Hollywood Bowl Group

It is not just clothing retailers that have had to cease doing business but anything that relies on mass gatherings, such as cinemas or bowling alleys.

Cineworld’s estate remain closed and there is no certainty as to when they will reopen. Concerns remain about its health despite the dividend being suspended and cash being conserved. It has been the most volatile stock in the FTSE All-Share over the past 30 days, according to data from Bloomberg, with a standard deviation of 213%. It has also thrown doubt over its proposed acquisition of Cineplex.

Hollywood Bowl is in a similar position and has had to close its outlets with little confidence over when it can reopen. It has already secured extra headroom from its lenders and had to raise equity at 145p per share in April – a chunky discount to its price at the time. Still, its volatility has reduced significantly over the past 30 days.

Most volatile US stocks: S&P 500

Below is a list of the most volatile stocks within the S&P 500 based on the standard deviation of the share price for the previous 360 days. The two sectors that make a prominent appearance are cruise line operators and those involved in oil and gas.

^{Source: Bloomberg}

Cruise line stocks on rough waters

Three cruise lines are included in the top ten most volatile stocks in the S&P 500, and that has continued over the last 30 days as the coronavirus causes chaos for the sector. Norwegian Cruise Line, Carnival and Royal Caribbean Cruises have all lost over 70% of their value since the start of the year.

They have had to cancel cruises this year as countries try to minimise travel. Carnival and Norwegian have both had to raise billions to try and stay afloat and warned of hefty losses to come.

The coronavirus is causing short-term havoc for all sectors, but it is expected to linger over the cruise liners for longer – especially if the coronavirus remains a problem for years to come. Cruise ships have proven to be petri dishes for the virus and appetite for travel and cruise holidays is expected to remain weak even after lockdown measures are eased.

The trio, alongside the rest of the industry, can’t see beyond the rough waters and the extreme volatility is likely to continue for the foreseeable future.

US oil and gas stocks prove volatile

Oil prices go wildly up and down and the sector is cyclical, but the world was still stunned when the WTI oil price fell below $0 for the first time in history in April, meaning you would effectively be paying someone to take oil away.

As the name suggests, West Texas Intermediate, or WTI oil, is predominantly made in the oil hub of the US, in Texas, meaning the crash in price predominantly hit American producers like Apache, Occidental, Noble, Diamondback, Marathon, Devon as well as those who provide vital services like Halliburton and ONEOK. Notably, London-listed oil and gas companies, especially those that make Brent, have not proven anywhere near as volatile as their US counterparts.

Interestingly, while US oil stocks have suffered large falls since the start of 2020 they have not suffered a complete crash like WTI, which means their stock prices have become dislocated from oil prices, which has made them even more volatile.

The price of WTI has improved markedly since entering negative territory as people look toward the US and the rest of the world reopening their economies, but the future for US oil producers still looks highly uncertain.

Organisation of the Petroleum Exporting Countries (OPEC), the group of countries led by Saudi Arabia that produces the majority of the world’s oil, alongside Russia and the US, have tried to cut production but so far that has failed to provide any real support to oil prices and future demand remains uncertain so long as countries remain in lockdown. We can expect US oil stocks to remain volatile so long as the coronavirus is around and oil prices remain volatile.

Most volatile international stocks: MSCI ACWI stocks

Below is a list of the most volatile stocks within the MSCI ACWI index based on the standard deviation of the share price for the previous 360 days. US companies make up over 57% of the index, so, unsurprisingly, there are many stocks listed that are also on the S&P 500 list. Still, let’s have a look at some of the stocks on the list that we have not already covered.

^{Source: Bloomberg}

United Airlines

There are few industries as hard hit by the coronavirus as airlines, with travel off the cards for most people. It has already raised over $1 billion from investors but failed to raise more when it abandoned a $2.25 billion bond sale in May as it didn’t stir up enough interest from investors, many of whom are looking to reduce exposure to the sector.

It was burning through $50 million a day but says that will gradually fall to $40 million in the third quarter and that it could get it as low as $20 million if it has to. The equity raise and a government bailout has failed to allay fears that the airline industry will remain grounded for the foreseeable future. United Airlines is one of the ‘big 4’ US airlines but has proven the most volatile over the last year and the most recent 30 days. American Airlines has experienced similar volatility, but Delta Air Lines and Southwest – particularly the latter – have been a lot more stable.

Wirecard

Wirecard has been embroiled in accusations of scandal in a story that has had all the twists and tales of a good novel. An explosive report by the Financial Times revealed severe accounting mis practices at the German firm and prompted it to hire auditors KPMG in October to try to clear its name as it has consistently denied all accusations of foul practice.

Wirecard remains adamant that its business is sound but the speculation will continue. KPMG’s report has failed to convince the market and the company has dismissed calls from investors for an independent review – only flaring tensions further. Volatility has decreased over the past 30 days but it still remains highly volatile, and will continue to do so until the allegations are put to bed.

GrubHub

GrubHub, the food delivery platform operating in the US and Canada, denied suggestions that it had put itself up for sale in January, but reports are still rife that a deal could be on the cards. The Wall Street Journal reported that GrubHub has been approached by rival Uber, the ridesharing firm that also owns food delivery arm UberEats, about a potential merger – although nothing has been confirmed as of yet.

GrubHub shares will likely remain volatile while a potential deal is in play and until a valuation is agreed (if any), and could remain volatile afterwards as the deal would face tough regulatory scrutiny that has already threatened the deal despite being speculation at present.

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