Whether a stock has the potential to offer considerable returns is determined primarily by its earnings and valuation ratios. Simultaneously, it is important to check whether its price performance exceeds its peers or the industry average.
On such comparison, if we find that a stock is unable to match up to wider sectoral growth despite having impressive earnings momentum or valuation multiples, it may be better to avoid it.
However, those outperforming their respective industries or benchmarks should be included in your portfolio, since they have a higher chance of securing significant returns. Picking a stock that outperforms its peers ensures that you have a winning option on your hands.
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 five of the 12 stocks that made it through the screen:
Ralph Lauren Corporation RL: Ralph Lauren, headquartered in New York, is a major designer, marketer and distributor of premium lifestyle products. 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 6.9%.
The Ensign Group, Inc. ENSG: The Ensign Group provides health care services in the post-acute care continuum, urgent care center and mobile ancillary businesses in the U.S. The 2019 Zacks Consensus Estimate for this Mission Viejo, CA-based company is $2.18, representing 16% earnings per share growth over 2018. Next year’s average forecast is $2.48 pointing to another 13.8% growth. The Ensign Group has a VGM Score of A.
SkyWest, Inc. SKYW: A regional airline in the United States, SkyWest has a VGM Score of A. Over 30 days, the St. George, UT-based company has seen the Zacks Consensus Estimate for 2019 and 2020 increase 5.1% and 5.9%, to $5.78 and $6.11 per share, respectively.
Cree, Inc. CREE: Cree is a manufacturer of semiconductor materials and devices for power and radio-frequency (RF) applications. Sporting a VGM Score of B, this Durham, NC-headquartered company’s expected EPS growth rate for three to five years currently stands at 20%, comparing favorably with the industry's growth rate of 14.7%.
The Estée Lauder Companies Inc. EL: Founded in 1946 and headquartered in New York, The Estée Lauder Companies is one of the world's leading manufacturers and marketers of skin care, makeup, fragrance and hair care products. The company has a VGM Score of B and an enviable earnings surprise history having surpassed estimates in three 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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