Stocks have become more volatile after they report earnings. Long-term investors can try to exploit this greater volatility, but shorter-term investors will want to favor lower-volatility stocks in the coming months.

General Motors $(GM)$ is a good example - the stock jumped 15% after its earnings report on Oct. 21. Netflix $(NFLX)$ shares fell 10% after it missed earnings on Oct. 22.

Such outsized reactions to earnings reports are increasingly the norm, according to research conducted by Bespoke Investment, as you can see from the chart below.

The chart shows the average absolute one-day percentage change following earnings reports in each of the past 15 years. The trend over this time is steeply upward, with 2025's average being a full 2 percentage points higher than 2010's. The average is even higher for the latest quarterly earnings season - 8.5%, according to Bespoke.

To understand the investment implications here, it's important to realize that increasing post-earnings volatility is not based on fundamentals. It instead traces to Wall Street's increasing reliance on short-term momentum strategies. By chasing performance, individuals and institutions exaggerate both the gains of companies whose earnings beat expectations and the losses of companies that miss.

One consequence is a greater number of stocks that are significantly over- or undervalued, according to Steven Check, editor of the Blue Chip Investor newsletter - thereby creating openings for investors who focus on the long term.

"As a larger percentage of market participants buy and sell stocks with no regard for a company's intrinsic value or earning power," Check wrote in the October issue of his newsletter, "it creates more opportunities for long-term, fundamental investors ... to identify mis-priced investments." (Disclosure: Check's newsletter contracts with my performance auditing firm to calculate its track record.)

Betting against beta

There is also a less-obvious implication of Bespoke's research: Earnings season is one of the only times when the highest-beta stocks outperform the lowest volatility issues, on average. Unless you're a daredevil who loves to incur risk, most of the time you should bet against beta.

Consider the performance of a hypothetical portfolio that buys the 10% of stocks with the highest betas and sells short the decile of stocks with the lowest betas. As you can see from the chart below, this portfolio makes money on average during the busiest weeks of earnings season - and is a slight loser the rest of the time. The data in the chart come from a study entitled "Asset Pricing on Earnings Announcement Days," published three years ago in the Journal of Financial Economics.

The implication: Since the current earnings season is winding down, you should be betting against beta for the next several months - at least until the third week of January, the busiest week of the next earnings season.

The most straightforward way of betting against beta is with an ETF that focuses on low-beta stocks, such as the Invesco S&P 500 Low Volatility ETF SPLV, which invests in the 100 stocks within the S&P 500 SPX that have the lowest trailing 12-month volatility.

For those who want to bet against beta with individual stocks, the 12 companies listed below are recommended for purchase by at least two of the investment newsletters my auditing firm monitors and have a beta no greater than 0.6 (according to LSEG). They are listed in ascending beta order.

-- General Mills

-- Hormel

-- Bristol-Myers Squibb

-- Merck

-- JNJ

-- Amgen

-- General Dynamics

-- HealthEquity

-- Pfizer PFE

-- Kroger

-- Tyson Foods

-- CVS Health Corp