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 in determining whether a stock’s price performance is better than its peers or the industry average.
If the 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 industries or benchmarks. This is because betting on a winner always increases the odds of winning.
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 five of the 11 stocks that made it through the screen:
Tailored Brands, Inc. TLRD: Tailored Brands, founded in 1973, is the largest specialty retailer of men's apparel in North America with approximately 1,700 stores across the U.S. and Canada. Sporting a VGM Score of A, this Houston, TX-headquartered company’s expected EPS growth rate for three to five years currently stands at 16.5%, comparing favorably with the industry's growth rate of 12.9%.
SORL Auto Parts, Inc. SORL: Headquartered in China, SORL Auto Parts is engaged in the manufacture and distribution of automotive air brake systems and other associated auto parts in China, primarily serving commercial vehicles such as trucks and buses. The firm has a VGM Score of B and a good earnings surprise history. It has a 75% track of outperforming estimates over the last four quarters at an average rate of 101.2%.
HollyFrontier Corporation HFC: one of the largest independent refiners and marketers of petroleum products in the U.S, HollyFrontier has a VGM Score of A. Over 30 days, the Dallas, TX-based company has seen the Zacks Consensus Estimate for 2017 and 2018 increase 18% and 12.4%, to $2.36 and $2.91 per share, respectively.
Hibbett Sports, Inc. HIBB: Headquartered in Birmingham, AL, Hibbett Sports operates sporting goods stores in small to mid-sized markets in the South, Southwest, Mid-Atlantic and lower Midwest regions of the U.S. The company, whose merchandise assortment is focused on footwear, athletic equipment and apparel, has a VGM Score of A and an enviable earnings surprise history. It met/surpassed estimates in each of the last four quarters.
Wynn Resorts, Limited WYNN: Headquartered in Las Vegas, NV, Wynn Resorts, together with its subsidiaries, is a leading developer, owner and operator of casino resorts. The 2017 Zacks Consensus Estimate for this company is $5.34, representing some 57.4% earnings per share growth over 2016. Next year’s average forecast is $6.45, pointing to another 20.8% growth. Wynn Resorts has a VGM Score of B.
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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Wynn Resorts, Limited (WYNN) : Free Stock Analysis Report
SORL Auto Parts, Inc. (SORL) : Free Stock Analysis Report
HollyFrontier Corporation (HFC) : Free Stock Analysis Report
Hibbett Sports, Inc. (HIBB) : Free Stock Analysis Report
Tailored Brands, Inc. (TLRD) : Free Stock Analysis Report
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