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It’s often a good idea to take a step back from our portfolio and view our individual holdings in isolation. We can often determine if each individual stock is a leader or laggard by comparing its relative performance to a benchmark (like the S&P 500). Buying leading stocks in the top industry groups can be a great approach to building long-term wealth.
Sounds easy, right?
Yet the fact remains that the majority of investors tend to buy stocks that they are comfortable with, despite the fact that these same stocks are often underperforming. Buying a stock that hasn’t moved much – or one that seems like a bargain – typically translates to a stock with little potential. There’s normally a reason why these stocks are at the bottom of the barrel.
Finding Leaders During New Bull Markets
Bear markets along with general corrections can help us separate the wheat from the chaff. The stocks that bottom out first and lead the way back up are the ones we want to target for additions to our portfolio. Stocks that lag or fail to appreciate in any material way (all while the market has resumed its long-term uptrend) flash a warning signal, telling us to avoid them altogether.
Top-performing stocks will lead the broader market averages at important turning points. Even while overall market conditions still appear bleak, leading names will start to rally sharply and make a pattern of higher highs.
True market leaders will show signs that a new leg higher is underway. Apart from improving relative strength, additional confirmation indicators such as increased volume on up days and 52-week highs can tip us off to more strength ahead. When a stock is acting as a ‘lone wolf’, it shows little correlation to the general market. A stock showing these characteristics will produce substantial gains even during days of weak market action.
Let’s take a look at two related companies to illustrate these concepts.
Buy Leaders, Avoid Laggards
Uber Technologies (UBER - Free Report) and Lyft (LYFT - Free Report) operate ride-sharing transportation networks that offer riders personalized and on-demand access to various mobility options. While UBER also offers other delivery and logistics services, the two companies share enough similarities for a relevant comparison. Both companies are part of the Zacks Internet – Services industry, which currently ranks in the top 29% out of approximately 250 industry groups.
Uber Technologies is a Zacks Rank #2 (Buy) stock. Notice how UBER bottomed in June of last year (well before the major indices) and has now entered an uptrend:
Image Source: StockCharts
UBER has been hitting a series of 52-week highs. Also note the volume spikes as the stock has broken out. The stock is trading above an upward sloping 50-day moving average (blue line) and 200-day moving average (red line).
The price movement is backed up by the fundamentals, as analysts have been increasing their earnings estimate revisions across the board. For the full year, estimates have been raised by 131.25% in the past 60 days. The 2023 Zacks Consensus EPS Estimate now stands at $0.05/share, reflecting a 101.08% growth rate relative to last year. The picture in 2024 looks even more promising, with current estimates projecting explosive growth of 1,578.66% to $0.84/share.
Image Source: Zacks Investment Research
On the other hand, LYFT has not only been lagging the general market, but the stock remains in an established downtrend. Notice how the stock has been making a series of 52-week lows, highlighted by extreme selling pressure. LYFT shares are trading below a downward-sloping 200-day moving average (red line). The stock has failed to rally even as the major indices have pushed much higher on the year.
Image Source: StockCharts
Analysts covering LYFT are much more bearish, with little in the way of revisions being made to earnings estimates. For the second quarter, analysts are projecting a loss of -$0.01/share, which would translate to negative growth of -108.33% relative to the same quarter last year.
Image Source: Zacks Investment Research
We want to listen to what the market is saying and let the strength of the market tell us where to put our investing capital. In this case, the market is clear that UBER is leading while LYFT is lagging. Make sure to pay attention to stocks that are leading this bull market rally.
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Leaders and Laggards: UBER Vs. LYFT
It’s often a good idea to take a step back from our portfolio and view our individual holdings in isolation. We can often determine if each individual stock is a leader or laggard by comparing its relative performance to a benchmark (like the S&P 500). Buying leading stocks in the top industry groups can be a great approach to building long-term wealth.
Sounds easy, right?
Yet the fact remains that the majority of investors tend to buy stocks that they are comfortable with, despite the fact that these same stocks are often underperforming. Buying a stock that hasn’t moved much – or one that seems like a bargain – typically translates to a stock with little potential. There’s normally a reason why these stocks are at the bottom of the barrel.
Finding Leaders During New Bull Markets
Bear markets along with general corrections can help us separate the wheat from the chaff. The stocks that bottom out first and lead the way back up are the ones we want to target for additions to our portfolio. Stocks that lag or fail to appreciate in any material way (all while the market has resumed its long-term uptrend) flash a warning signal, telling us to avoid them altogether.
Top-performing stocks will lead the broader market averages at important turning points. Even while overall market conditions still appear bleak, leading names will start to rally sharply and make a pattern of higher highs.
True market leaders will show signs that a new leg higher is underway. Apart from improving relative strength, additional confirmation indicators such as increased volume on up days and 52-week highs can tip us off to more strength ahead. When a stock is acting as a ‘lone wolf’, it shows little correlation to the general market. A stock showing these characteristics will produce substantial gains even during days of weak market action.
Let’s take a look at two related companies to illustrate these concepts.
Buy Leaders, Avoid Laggards
Uber Technologies (UBER - Free Report) and Lyft (LYFT - Free Report) operate ride-sharing transportation networks that offer riders personalized and on-demand access to various mobility options. While UBER also offers other delivery and logistics services, the two companies share enough similarities for a relevant comparison. Both companies are part of the Zacks Internet – Services industry, which currently ranks in the top 29% out of approximately 250 industry groups.
Uber Technologies is a Zacks Rank #2 (Buy) stock. Notice how UBER bottomed in June of last year (well before the major indices) and has now entered an uptrend:
Image Source: StockCharts
UBER has been hitting a series of 52-week highs. Also note the volume spikes as the stock has broken out. The stock is trading above an upward sloping 50-day moving average (blue line) and 200-day moving average (red line).
The price movement is backed up by the fundamentals, as analysts have been increasing their earnings estimate revisions across the board. For the full year, estimates have been raised by 131.25% in the past 60 days. The 2023 Zacks Consensus EPS Estimate now stands at $0.05/share, reflecting a 101.08% growth rate relative to last year. The picture in 2024 looks even more promising, with current estimates projecting explosive growth of 1,578.66% to $0.84/share.
Image Source: Zacks Investment Research
On the other hand, LYFT has not only been lagging the general market, but the stock remains in an established downtrend. Notice how the stock has been making a series of 52-week lows, highlighted by extreme selling pressure. LYFT shares are trading below a downward-sloping 200-day moving average (red line). The stock has failed to rally even as the major indices have pushed much higher on the year.
Image Source: StockCharts
Analysts covering LYFT are much more bearish, with little in the way of revisions being made to earnings estimates. For the second quarter, analysts are projecting a loss of -$0.01/share, which would translate to negative growth of -108.33% relative to the same quarter last year.
Image Source: Zacks Investment Research
We want to listen to what the market is saying and let the strength of the market tell us where to put our investing capital. In this case, the market is clear that UBER is leading while LYFT is lagging. Make sure to pay attention to stocks that are leading this bull market rally.