5 Growth Opportunities Thriving on Relative Price Strength
In the first seven months of 2023, U.S. stock markets rebounded strongly after a highly disappointing 2022. However, volatility has returned on Wall Street since the beginning of August, with several gloomy pictures across the world denting market participants’ confidence in risky assets like equities. As U.S. banks remain under rating watch and China, the world’s second-largest economy, still trying to recover from the aftershock of COVID-19, there might be short-term fluctuations.
Adding to the uncertainty, the majority of Federal Reserve officials remained concerned that the general price level stayed elevated despite the central bank’s decision to adopt strict monetary control and aggressive interest rate hike policies in the last one and a half years. Consequently, the minutes of the Fed’s July FOMC meeting indicate the possibility of more rate hikes in the near future.
Therefore, investors who 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 13 stocks that made it through the screen:
Huron Consulting Group Inc. HURN: The company offers consultance services in the educational, healthcare and commercial fields. Over the past 30 days, this Chicago, IL-based firm saw the Zacks Consensus Estimate for 2023 move up 9.4%. HURN has a VGM Score of B.
Huron Consulting beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 21.8%, on average. HURN shares have gained 34.9% in a year.
Encompass Health Corporation EHC: It offers facility-based patient care through its network of inpatient rehabilitation hospitals. Over the past 30 days, this Birmingham, AL-based firm saw the Zacks Consensus Estimate for 2023 move up 6.3%. EHC has a VGM Score of B.
Encompass Health beat the Zacks Consensus Estimate for earnings in three of the last four quarters and missed in the other. It has a trailing four-quarter earnings surprise of roughly 14%, on average. EHC shares have gained 31.7% in a year.
Dr. Reddy's Laboratories Ltd. RDY: The company is engaged in providing affordable and innovative medicines in countries like the United States, the UK, Germany, India, Russia, Venezuela, Romania and South Africa. Over the past 30 days, this India-based firm saw the Zacks Consensus Estimate for fiscal 2024 move up 10%. RDY has a VGM Score of B.
Dr. Reddy's Laboratories’ expected EPS growth rate for three to five years is currently 9%, which compares favorably with the industry's growth rate of 5.9%. It has a trailing four-quarter earnings surprise of roughly 39.6%, on average. RDY shares have increased 36.8% in a year.
DMC Global Inc. BOOM: The company is a leading worldwide provider of engineered products used for construction, energy, industrial processing, and transportation markets. The 2023 Zacks Consensus Estimate for the Broomfield, CO-based firm indicates 200% year-over-year earnings per share growth.
DMC Global beat the Zacks Consensus Estimate for earnings in three of the last four quarters and missed in the other. It has a trailing four-quarter earnings surprise of roughly 23.9%, on average. BOOM shares have lost 7.7% in a year.
Hawkins, Inc. HWKN: Based in Roseville, MN, Hawkins supplies a variety of chemical products to industrial, water treatment, and health and nutrition customers. Over the past 30 days, this firm saw the Zacks Consensus Estimate for fiscal 2024 move up 32.3%. HWKN has a VGM Score of A.
The fiscal 2024 Zacks Consensus Estimate for Hawkins indicates 18.9% year-over-year earnings per share growth. It has a trailing four-quarter earnings surprise of roughly 25.6%, on average. HWKN shares have increased 28.2% 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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Dr. Reddy's Laboratories Ltd (RDY) : Free Stock Analysis Report
Huron Consulting Group Inc. (HURN) : Free Stock Analysis Report
DMC Global (BOOM) : Free Stock Analysis Report
Hawkins, Inc. (HWKN) : Free Stock Analysis Report
Encompass Health Corporation (EHC) : Free Stock Analysis Report
