5 Good Opportunities on Relative Price Strength Strategy
In 2023, the S&P 500 — regarded as one of the finest reflections of the stock market — has been experiencing a strong period of growth. Last year, the index fell by 19.4% because of extremely high inflation, a stringent money policy, and the Fed raising interest rates a lot.
However, things have completely turned around this year. The inflation rate is steadily going down, important economic measures are cooling off, and investors expect the time of increasing interest rates to be coming to an end. The S&P 500 Index has gone up by nearly 24% this year.
It's expected that the U.S. economy will do well in 2024 because the Fed plans to start lowering interest rates, at least in the first part of the year.
Against this positive backdrop, astute investors are concentrating on relative price performance, strategically identifying and investing in promising stocks to achieve accelerated returns.
Relative Price Strength Strategy
Investors generally gauge a stock’s potential returns by examining earnings growth and valuation multiples. At the same time, it’s essential to measure the performance of such a stock relative to its industry or peers, or an appropriate benchmark.
If you see that a stock is underperforming on fundamental factors, it would be prudent to move on and find a better alternative. However, those outperforming their respective sectors in terms of price should be selected because they stand a better chance of providing considerable returns.
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 for 1 to 3 months at least and having solid fundamentals indicate room for growth and are the best ways to go about this strategy.
Finally, it is crucial to find out whether analysts are optimistic about the upcoming earnings 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.
Screening Parameters
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 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 five of the 15 stocks that made it through the screen:
Amphastar Pharmaceuticals AMPH: Based in Rancho Cucamonga, CA, it is a biopharmaceutical firm that develops, manufactures, and sells generic and proprietary injectable, inhalation, and intranasal products. Amphastar Pharmaceuticals’ expected EPS growth rate for three to five years is currently 22.6%, which compares favorably with the industry's growth rate of 11.9%. The company has a VGM Score of B.
Notably, the 2023 Zacks Consensus Estimate for Amphastar Pharmaceuticals indicates 62.9% year-over-year earnings per share growth. The company has a market capitalization of $2.9 billion. AMPH shares have gone up 112.6% in a year.
Shift4 Payments FOUR: The company specializes in delivering payment processing services to a diverse clientele through its platform. The 2023 Zacks Consensus Estimate for the Allentown, PA-based firm indicates 110.1% year-over-year earnings per share growth. FOUR has a VGM Score of A.
Shift4 Payments beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of 25%, on average. FOUR shares have gained 37.6% in a year.
Beacon Roofing Supply BECN: It is the largest publicly traded distributor of residential and non-residential roofing materials and complementary building products in North America. The 2023 Zacks Consensus Estimate for this firm indicates 9.2% year-over-year earnings per share growth. Headquartered in Herndon, VA, BECN has a VGM Score of A.
Beacon Roofing beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 11.1%, on average. BECN shares have shot up 65.3% in a year.
Hooker Furnishings Corporation HOFT: Based in Martinsville, VA, the company is a manufacturer and importer of residential household and contract furniture. Over the past 60 days, Hooker Furnishings saw the Zacks Consensus Estimate for fiscal 2024 move up 76.8%. HOFT has a VGM Score of A.
The Zacks Consensus Estimate for Hooker Furnishings’ fiscal 2024 earnings indicates 12.4% year-over-year growth. It has a trailing four-quarter earnings surprise of roughly 150%, on average. HOFT shares have increased 48.1% in a year.
Hilltop Holdings HTH: Based in Dallas, TX, Hilltop Holdings offers a wide range of financial products and services through broker-dealer along with mortgage origination. Over the past 60 days, the company saw the Zacks Consensus Estimate for 2023 move up 6.5%. HTH has a VGM Score of B.
The 2023 Zacks Consensus Estimate for Hilltop Holdings indicates 3.1% year-over-year earnings per share growth. It has a trailing four-quarter earnings surprise of roughly 30%, on average. HTH shares have gained 17.6% in a year.
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.
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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.
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Amphastar Pharmaceuticals, Inc. (AMPH) : Free Stock Analysis Report
Hilltop Holdings Inc. (HTH) : Free Stock Analysis Report
Beacon Roofing Supply, Inc. (BECN) : Free Stock Analysis Report
Hooker Furnishings Corp. (HOFT) : Free Stock Analysis Report
Shift4 Payments, Inc. (FOUR) : Free Stock Analysis Report
