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Screen of the Week of Zacks Investment Research by:
Don’t Fear Overvaluation, Play 5 Stocks with Rising P/E
Wall Street has seen a nice run this year, making many investors happy but nervous too. Nervous because after such a stupendous rally, thoughts of overvaluation are inevitable. Many investors are probably fervently looking for undervalued stocks now.
Agreed, this is an intriguing and age-old idea. But there are also other ways to ride out a lofty market. Investors commonly believe that lower the P/E, the higher will be the value of the stock. The logic is simple — a stock’s current market price is not reflective its higher earnings and therefore chances of outperformance are higher.
But there is more to this whole P/E story as not only low P/E, stocks with a rising P/E can prove worthwhile in finding great stocks. Let’s dig a little deeper.
Rising P/E: An Useful Tool
Generally, the price of a stock rallies on a rise in earnings. As forecasts for expected earnings move higher, demand for the stock should drive its price. After all, a stock's P/E gives an indication of how much investors are ready to shell out for every dollar of earnings. Thus, if the P/E of a stock is rising steadily, it means that investors are pinning their hopes on the company’s inherent strength.
Also, studies have revealed that stocks have seen their P/E ratios jump over 100% from their breakout point in the cycle. So, if you can pick stocks early in their breakout cycle, you can end up seeing considerable gains.
The Winning Strategy
In order to shortlist stocks that are exhibiting an increasing P/E, we chose the following as our primary screening parameters.
EPS growth estimate for the current year is greater than or equal to last year’s actual growth
Percentage change in last year EPS should be greater than or equal to zero
(These two criteria point to flat earnings or a growth trend over the years.)
Percentage change in price over four weeks greater than the percentage change in price over 12 weeks
Percentage change in price over 12 weeks greater than percentage change in price over 24 weeks
(These two criteria show that price of the stock is increasing consistently over the said timeframes.)
Percentage price change for four weeks relative to the S&P 500 greater than the percentage price change for 12 weeks relative to the S&P 500
Percentage price change for 12 weeks relative to the S&P 500 greater than the percentage price change for 24 weeks relative to the S&P 500
(Here, the case for consistent price gains gets even stronger as it displays percentage price changes relative to the S&P 500.)
Percentage price change for 12 weeks is 20% higher than or equal to the percentage price change for 24 weeks, but it should not exceed 100%
(A 20% increase in the price of a stock from the breakout point gives cues of an impending uptrend. But a jump of over 100% indicates that there is limited scope for further upside and that the stock might be due for a reversal.)
In addition, we place a few other criteria that lead us to some likely outperformers.
Zacks Rank less than or equal to 2: Only companies with a Zacks Rank #1 (Strong Buy) or 2 (Buy) can get through.
Average 20-day Volume greater than or equal to 50,000: High trading volume implies that the stocks have adequate liquidity.
Just these few criteria narrowed down the universe from over 7,700 stocks to just 19.
Here are five out of the 19 stocks:
MINDBODY Inc. (Nasdaq: – Free Report): This is a developer of cloud-based business management software and payments’ platform for the wellness services industry. The stock belongs to a Zacks Industry Rank in the top 39%. It carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Piedmont Office Realty Trust Inc. (NYSE: (PDM - Free Report) – Free Report): This is an integrated and self-managed real estate investment trust, carrying a Zacks Rank #2. The stock belongs to a Zacks Industry Rank in the top 35%.
B&G Foods Inc. (NYSE: (BGS - Free Report) – Free Report): This is a manufacturer and seller of a diversified portfolio of shelf-stable foods across the United States, Canada and Puerto Rico. The stock belongs to a Zacks Sector Rank in the top 41% and carries a Zacks Rank #2.
Macquarie Infrastructure Company (NYSE: – Free Report): This operator and investor in a diversified group of infrastructure businesses belongs to a Zacks Industry Rank in the top 22%. The stock has a Zacks Rank #1 (Strong Buy).
Prestige Brand Holdings Inc. (NYSE: (PBH - Free Report) – Free Report): This company is a marketer and distributor of brand name over- the-counter drug, personal care and household cleaning products sold throughout the United States and Canada. The Zacks Industry Rank is in the top 21%. The stock has a Zacks Rank #2.
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.
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time!Click here for your free subscription to Profit from the Pros.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
See More Zacks Research for These Tickers
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Zacks.com featured highlights include MINDBODY, Piedmont Office Realty Trust, B&G Foods, Macquarie Infrastructure and Prestige Brand Holdings
For Immediate Release
Chicago, IL – October 18, 2017 - Stocks in this week’s article MINDBODY Inc. (Nasdaq: – Free Report), Piedmont Office Realty Trust Inc. (NYSE: (PDM - Free Report) – Free Report), B&G Foods Inc. (NYSE: (BGS - Free Report) – Free Report), Macquarie Infrastructure Company (NYSE: – Free Report) and Prestige Brand Holdings Inc. (NYSE: (PBH - Free Report) – Free Report).
Screen of the Week of Zacks Investment Research by:
Don’t Fear Overvaluation, Play 5 Stocks with Rising P/E
Wall Street has seen a nice run this year, making many investors happy but nervous too. Nervous because after such a stupendous rally, thoughts of overvaluation are inevitable. Many investors are probably fervently looking for undervalued stocks now.
Agreed, this is an intriguing and age-old idea. But there are also other ways to ride out a lofty market. Investors commonly believe that lower the P/E, the higher will be the value of the stock. The logic is simple — a stock’s current market price is not reflective its higher earnings and therefore chances of outperformance are higher.
But there is more to this whole P/E story as not only low P/E, stocks with a rising P/E can prove worthwhile in finding great stocks. Let’s dig a little deeper.
Rising P/E: An Useful Tool
Generally, the price of a stock rallies on a rise in earnings. As forecasts for expected earnings move higher, demand for the stock should drive its price. After all, a stock's P/E gives an indication of how much investors are ready to shell out for every dollar of earnings. Thus, if the P/E of a stock is rising steadily, it means that investors are pinning their hopes on the company’s inherent strength.
Also, studies have revealed that stocks have seen their P/E ratios jump over 100% from their breakout point in the cycle. So, if you can pick stocks early in their breakout cycle, you can end up seeing considerable gains.
The Winning Strategy
In order to shortlist stocks that are exhibiting an increasing P/E, we chose the following as our primary screening parameters.
EPS growth estimate for the current year is greater than or equal to last year’s actual growth
Percentage change in last year EPS should be greater than or equal to zero
(These two criteria point to flat earnings or a growth trend over the years.)
Percentage change in price over four weeks greater than the percentage change in price over 12 weeks
Percentage change in price over 12 weeks greater than percentage change in price over 24 weeks
(These two criteria show that price of the stock is increasing consistently over the said timeframes.)
Percentage price change for four weeks relative to the S&P 500 greater than the percentage price change for 12 weeks relative to the S&P 500
Percentage price change for 12 weeks relative to the S&P 500 greater than the percentage price change for 24 weeks relative to the S&P 500
(Here, the case for consistent price gains gets even stronger as it displays percentage price changes relative to the S&P 500.)
Percentage price change for 12 weeks is 20% higher than or equal to the percentage price change for 24 weeks, but it should not exceed 100%
(A 20% increase in the price of a stock from the breakout point gives cues of an impending uptrend. But a jump of over 100% indicates that there is limited scope for further upside and that the stock might be due for a reversal.)
In addition, we place a few other criteria that lead us to some likely outperformers.
Zacks Rank less than or equal to 2: Only companies with a Zacks Rank #1 (Strong Buy) or 2 (Buy) can get through.
Average 20-day Volume greater than or equal to 50,000: High trading volume implies that the stocks have adequate liquidity.
Just these few criteria narrowed down the universe from over 7,700 stocks to just 19.
Here are five out of the 19 stocks:
MINDBODY Inc. (Nasdaq: – Free Report): This is a developer of cloud-based business management software and payments’ platform for the wellness services industry. The stock belongs to a Zacks Industry Rank in the top 39%. It carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Piedmont Office Realty Trust Inc. (NYSE: (PDM - Free Report) – Free Report): This is an integrated and self-managed real estate investment trust, carrying a Zacks Rank #2. The stock belongs to a Zacks Industry Rank in the top 35%.
B&G Foods Inc. (NYSE: (BGS - Free Report) – Free Report): This is a manufacturer and seller of a diversified portfolio of shelf-stable foods across the United States, Canada and Puerto Rico. The stock belongs to a Zacks Sector Rank in the top 41% and carries a Zacks Rank #2.
Macquarie Infrastructure Company (NYSE: – Free Report): This operator and investor in a diversified group of infrastructure businesses belongs to a Zacks Industry Rank in the top 22%. The stock has a Zacks Rank #1 (Strong Buy).
Prestige Brand Holdings Inc. (NYSE: (PBH - Free Report) – Free Report): This company is a marketer and distributor of brand name over- the-counter drug, personal care and household cleaning products sold throughout the United States and Canada. The Zacks Industry Rank is in the top 21%. The stock has a Zacks Rank #2.
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.
Click here to sign up for a free trial to the Research Wizard today.
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time!Click here for your free subscription to Profit from the Pros.
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Contact: Jim Giaquinto
Company: Zacks.com
Phone: 312-265-9268
Email: pr@zacks.com
Visit: https://www.zacks.com/performance
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.