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Use Relative Price Strength to Find Out 4 Winning Stocks

Nilanjan Choudhury

Investors generally gauge a stock’s potential return by examining earnings growth and valuation multiples. At the same time, it’s important to measure the performance of such a stock relative to its industry or peers, or the appropriate benchmark.

If you see that a stock is underperforming on fundamental factors, then it would be prudent to move on and find a better alternative. However, those outperforming their respective sectors in terms of price should be selected because they stand a better chance to provide considerable returns.

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.

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, 4 weeks and 1 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 four stocks that made it through the screen:

American Airlines Group Inc. AAL: Headquartered in Fort Worth, TX, American Airlines Group is an international carrier that operates more than 6,700 daily flights to over 330 destinations in more than 50 nations across the globe from its hubs. The company has a VGM score of “B” and an excellent earnings surprise history. It surpassed estimates in three of the last four quarters at an average rate of 20.24%.

H&R Block Inc. HRB: A provider of tax, accounting and business consulting services and products, H&R Block has a VGM score of “A”. Over the past 30 days, the Kansas City, MO-based firm has seen the Zacks Consensus Estimate for fiscal years 2018 and 2019 (ending April) increase 10.5% and 9.6%, to $2.00 and $2.05 per share, respectively.

ARI Network Services Inc. ARIS: ARI Network Services is a leading provider of proprietary software tools and marketing services to its clients – dealers, distributors and manufacturers – to increase their sale in a variety of markets. Sporting a VGM score of “B”, this Milwaukee, WI-headquartered company’s expected EPS growth rate for 3 to 5 years currently stands at 15.00%, comparing favorably with the industry growth rate of 13.90%.

The Progressive Corp. PGR: Headquartered in Mayfield Village, OH, The Progressive Corp. is a leading independent agency writer of private passenger auto coverage, and the market share leader for motorcycle products since 1998. The 2017 Zacks Consensus Estimate for this company is $2.40, representing some 44.9% earnings per share growth over 2016. Next year’s average forecast is $2.64, pointing to another 9.7% growth. The Progressive Corp. has a VGM score of “B”.

Sign 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.

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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 Airlines Group, Inc. (AAL) : Free Stock Analysis Report
 
ARI Network Services, Inc. (ARIS) : Free Stock Analysis Report
 
Progressive Corporation (The) (PGR) : Free Stock Analysis Report
 
H&R Block, Inc. (HRB) : Free Stock Analysis Report
 
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