5 Solid Plays on the Relative Price Strength Trend
Wall Street continues its strong performance in 2024, building on its success from the previous year. So far this year, the benchmark S&P 500 index has risen more than 5%. The main reasons for this upward trend include expectations of interest rate cuts by the Fed, better-than-expected earnings in the fourth quarter of 2023 and significant growth in artificial intelligence (AI) technology globally.
Additionally, the U.S. economy remains robust, with the Department of Commerce reporting a growth rate of 3.3% in the fourth quarter of 2023, surpassing the expected 2%. Overall, the GDP for the United States grew 2.5% in 2023 compared with 1.9% in 2022, exceeding initial estimates.
Given this positive outlook, savvy investors are focusing on relative price performance, strategically identifying and seizing promising opportunities that offer the potential for high returns.
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 20 stocks that made it through the screen:
American Eagle Outfitters AEO: Based in Pittsburgh, PA, the company is a specialty retailer of casual apparel, accessories and footwear for men and women aged 15–25 years. AEO’s expected EPS growth rate for three to five years is currently 21.5%, which compares favorably with the industry's growth rate of 12.7%. The company has a VGM Score of B.
Notably, the Zacks Consensus Estimate for American Eagle Outfitters’ fiscal 2024 earnings per share indicates 45.4% year-over-year growth. The company has a market capitalization of $4.7 billion. AEO shares have gone up 66.5% in a year.
Central Garden & Pet Company CENT: It is one of the leading companies in the U.S. pet supplies and lawn and garden supplies space. The Zacks Consensus Estimate for this firm’s fiscal 2024 earnings indicates 7.3% year-over-year growth. Headquartered in Walnut Creek, CA, CENT has a VGM Score of A.
Central Garden & Pet Company beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 37.8%, on average. CENT shares have risen 35.7% in a year.
General Motors Co. GM: Based in Detroit, MI, the company is one of the world’s largest automakers. Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has moved up 17%. GM has a VGM Score of B.
The Zacks Consensus Estimate for General Motors’s 2024 earnings indicates 17.2% year-over-year growth. It has a trailing four-quarter earnings surprise of roughly 20% on average. GM shares have increased 4.9% in a year.
Vertiv Holdings Co VRT: The company is an electrical product manufacturer focused on data centers and telecom end markets. Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings of this Westerville, OH-based firm has moved up 6.3%. VRT has a VGM Score of B.
Vertiv Holdings’ expected EPS growth rate for three to five years is currently 25.6%, which compares favorably with the industry's growth rate of 17.8%. It has a trailing four-quarter earnings surprise of roughly 30.4%, on average. VRT shares have surged 309.8% in a year.
Toll Brothers, Inc. TOL: The company is a well-known home builder focused on the luxury end of the market. The Zacks Consensus Estimate for fiscal 2024 earnings of this firm indicates 7.8% growth. Headquartered in Horsham, PA, TOL has a VGM Score of A.
Over the past 60 days, the Zacks Consensus Estimate for fiscal 2024 has moved up 8.9%. The company has a trailing four-quarter earnings surprise of roughly 30.2%, on average. TOL shares have gained 90.2% 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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American Eagle Outfitters, Inc. (AEO) : Free Stock Analysis Report
Central Garden & Pet Company (CENT) : Free Stock Analysis Report
General Motors Company (GM) : Free Stock Analysis Report
Toll Brothers Inc. (TOL) : Free Stock Analysis Report
Vertiv Holdings Co. (VRT) : Free Stock Analysis Report
