Whether a stock has the potential to offer considerable returns is determined primarily by its earnings and valuation ratios. Simultaneously, it is important to check whether its price performance exceeds its peers or the industry average.
On such comparison, if we find that a stock is unable to match up to wider sectoral growth despite having impressive earnings momentum or valuation multiples, it may be better to avoid it.
However, those outperforming their respective industries or benchmarks should be included in your portfolio, since they have a higher chance of securing significant returns. Picking a stock that outperforms its peers ensures that you have a winning option on your hands.
Then again, it is imperative that you determine whether or not an investment has relevant upside potential when considering stocks with significant relative price strength. Stocks delivering better than the S&P 500 over a period of 1 to 3 months at the least and having solid fundamentals indicate room for growth and are the best ways to go about this strategy.
Finally, it is important to find out whether analysts are optimistic about the upcoming earnings results of these companies. In order to do this, we have added positive estimate revisions for the current quarter’s (Q1) earnings to our screen. When a stock undergoes an upward revision, it leads to additional price gains.
Relative % Price change – 12 weeks greater than 0
Relative % Price change – 4 weeks greater than 0
Relative % Price change – 1 week greater than 0
(We have considered those stocks that have been outperforming the S&P 500 over the last 12 weeks, four weeks and one week.)
% Change (Q1) Est. over 4 Weeks greater than 0: Positive current quarter estimate revisions over the last four weeks.
Zacks Rank equal to 1: Only Zacks Rank #1 (Strong Buy) stocks – that have returned more than 26% annually over the last 26 years and surpassed the S&P 500 in 23 of the last 26 years – can get through. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Current Price greater than or equal to $5 and Average 20-day Volume greater than or equal to 50,000: A minimum price of $5 is a good standard to screen low-priced stocks, while a high trading volume would imply adequate liquidity.
VGM Score less than or equal to B: Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or #2 (Buy) offer the best upside potential.
Here are the four stocks that made it through the screen:
Ducommun Incorporated DCO: Ducommun is a diversified provider of engineering and manufacturing services and niche products to the aerospace and defense markets. The 2019 Zacks Consensus Estimate for this Santa Ana, CA-based company is $2.70, representing 250.7% earnings per share growth over 2018. Next year’s average forecast is $2.95 pointing to another 9.4% growth. Ducommun has a VGM Score of B.
Target Corporation TGT: A general merchandise retailer in the U.S. providing an array of goods ranging from household essentials and electronics to toys and apparel for men, women and kids, Target has a VGM Score of B. Over 30 days, the Minneapolis, MN-based company has seen the Zacks Consensus Estimate for FY 2020 and FY 2021 increase 3.4% and 4.4%, to $6.38 and $6.87 per share, respectively.
Banco Macro S.A. BMA: Banco Macro, headquartered in Argentina, is one of the leading banks in Latin America in terms of deposits. The firm has a VGM Score of A and an excellent earnings surprise history having surpassed estimates in each of the last four quarters, the average being 35.6%.
American Equity Investment Life Holding Company AEL: Founded in 1995 and headquartered in West Des Moines, IA, American Equity Investment Life Holding Company is an underwriter of annuity and life insurance products. The company has a VGM Score of A and an impeccable earnings surprise history having surpassed estimates in each of the last four quarters, the average being 47.6%.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Ducommun Incorporated (DCO) : Free Stock Analysis Report
Macro Bank Inc. (BMA) : Free Stock Analysis Report
American Equity Investment Life Holding Company (AEL) : Free Stock Analysis Report
Target Corporation (TGT) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research