5 Great Relative Price Strength Stocks for Your Portfolio
After it ended the first three quarters of the year down around 25%, the S&P 500 notched a fabulous October, with the index gaining more than 5% for its best trading month since July.
Indeed, the market has yet to come out of the woods as concerns like the complete devastation of the global supply-chain system, record-high inflation and a possible recession are still weighing on investor sentiment. However, several positive signs have started to emerge. In particular, good readings on the U.S. GDP, Personal Income and Outlays report and personal consumption expenditure price index were touted as welcome news.
Having said that, the market remains hamstrung by inflation fears and the headwinds of higher interest rates. Following three back-to-back-to-back 75 basis-point rate hikes so far this year, the likelihood of another 75 basis-point increase this week is extremely high. Worse, experts apprehend continued upward pressure on most prices in the near-to-medium term.
As such, extremely volatile trading in U.S. markets since the beginning of 2022 is expected to persist. Risks stemming from recession fears, geopolitical tensions and dwindling liquidity may also lead to a rough road for equities.
In the current jittery market environment, investors who might want to stay exposed to the equity setup should focus on good investment opportunities. One of the ways such potential plays could be identified is to look for signs of relative price strength.
Relative Price Strength Strategy
Earnings growth and valuation multiples are indeed important for investors to determine a stock's ability to offer considerable returns. But these are also essential for determining whether a stock’s price performance is better than its peers or the industry average.
If a stock’s performance is lacking that of the broader groups, despite impressive earnings growth or valuation multiples, then something must be wrong.
It’s always advisable to stay away from these stocks and bet on those that are outperforming their respective industry or benchmark. This is because betting on a winner always proves to be lucrative.
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 29 stocks that made it through the screen:
Halliburton Company HAL: Halliburton is one of the largest oilfield service providers in the world. The 2022 Zacks Consensus Estimate for the Houston, TX-based firm indicates 91.7% year-over-year earnings per share growth. HAL has a VGM Score of B.
Halliburton beat the Zacks Consensus Estimate for earnings in three of the last four quarters. It has a trailing four-quarter earnings surprise of 5.5%, on average. HAL shares have gained 43.5% in a year.
Flex Ltd. FLEX: Based in Singapore, the company (formerly known as Flextronics International Ltd) provides end-to-end services i.e. designing, engineering, manufacturing, as well as supply chain services and solutions to original equipment manufacturers. FLEX’s expected EPS growth rate for three to five years is currently 13.7%, which compares favorably with the industry's growth rate of 10.7%. Flex has a VGM Score of B.
Notably, Flex beat the Zacks Consensus Estimate for earnings in each of the last four quarters. The company has a trailing four-quarter earnings surprise of 18.5%, on average. FLEX shares have gone up 11.3% in a year.
United States Cellular Corporation USM: It is is the fourth largest full-service wireless carrier in the United States. U.S. Cellular has a VGM Score of B. Over the past 90 days, Chicago, IL-based USM saw the Zacks Consensus Estimate for 2022 move up 3%.
U.S. Cellular beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, the average being 27.6%. Valued at around $2.7 billion, USM has lost 1.6% in a year.
Applied Industrial Technologies AIT: Applied Industrial Technologies is primarily a distributor of engineered fluid power components, bearings, specialty flow control solutions, power transmission products and miscellaneous supplies. The fiscal 2023 Zacks Consensus Estimate for this Cleveland, OH-based firm indicates 9.3% year-over-year earnings per share growth. AIT has a VGM Score of A.
Applied Industrial Technologies beat the Zacks Consensus Estimate for earnings in three of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 24.8%, on average. AIT shares have gained 28.7% in a year.
Monarch Casino & Resort, Inc. MCRI: It is the owner and operator of two regional casinos. Monarch Casino & Resort has a VGM Score of B. Over the past 30 days, Reno, NV-based MCRI saw the Zacks Consensus Estimate for 2022 move up 6.8%.
Monarch Casino & Resort beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 9.1%. Valued at around $1.5 billion, MCRI has gained 12.1% 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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United States Cellular Corporation (USM) : Free Stock Analysis Report
Halliburton Company (HAL) : Free Stock Analysis Report
Applied Industrial Technologies, Inc. (AIT) : Free Stock Analysis Report
Flex Ltd. (FLEX) : Free Stock Analysis Report
Monarch Casino & Resort, Inc. (MCRI) : Free Stock Analysis Report
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