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 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 22 stocks that made it through the screen:
United States Cellular Corporation USM: One of the largest wireless telecom operators in the United States in terms of customer count, United States Cellular has a VGM Score of B. Over 30 days, the Chicago, IL-based company has seen the Zacks Consensus Estimate for 2018 and 2019 increase 60.9% and 38.5%, to $1.11 and 90 cents per share, respectively.
Molina Healthcare, Inc. MOH: Molina Healthcare, headquartered in Long Beach, CA, is a multi-state managed care organization participating exclusively in government-sponsored healthcare programs. The firm has a VGM Score of A and an excellent earnings surprise history. It has a 100% track of outperforming estimates over the last four quarters at an average rate of 164.2%.
Archer Daniels Midland Company ADM: Archer Daniels is one of the leading food processing companies in the world. The 2018 Zacks Consensus Estimate for this Chicago, IL-based company is $3.28, representing some 35% earnings per share growth over 2017. Next year’s average forecast is $3.52, pointing to another 7.2% growth. Archer Daniels has a VGM Score of A.
Bristol-Myers Squibb Company BMY: Bristol-Myers Squibb is a global specialty biopharmaceutical company focused on the development of treatments targeting serious diseases. Sporting a VGM Score of B, this New York-headquartered company’s expected EPS growth rate for three to five years currently stands at 11%, comparing favorably with the industry's growth rate of 8.6%.
Callaway Golf Company ELY: Founded in 1982 and headquartered in Carlsbad, CA, Callaway Golf Company is a global designer, manufacturer and supplier of golf equipments and accessories. The company has a VGM Score of B and an enviable earnings surprise history. It surpassed estimates in each of the last four quarters.
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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Bristol-Myers Squibb Company (BMY) : Free Stock Analysis Report
Callaway Golf Company (ELY) : Free Stock Analysis Report
Molina Healthcare, Inc (MOH) : Free Stock Analysis Report
United States Cellular Corporation (USM) : Free Stock Analysis Report
Archer Daniels Midland Company (ADM) : Free Stock Analysis Report
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