After the turmoil in September, Wall Street has recovered some of the lost ground so far in October. However, we are not out of the woods. Three major factors are present that can flare up market volatility anytime.
First, U.S. Congress is yet to reach an amicable solution regarding the size and scope of the second round of coronavirus-aid package. The Democrats have settled for a $2.2 trillion stimulus while the White House has approved only $1.8 trillion. It is not clear whether a deal will arrive before the U.S. presidential election scheduled on Nov 3.
Second, it seems a remote possibility that a vaccine or a proper line of treatment for COVID-19 will appear this year. This week the FDA has paused late-stage clinical trials of two drugs for the potential treatment of conronavirus on safety concerns.
Meanwhile, several states and regions in the United States and major Eurozone countries have recently witnessed another spike in COVID-19 infections as these economies are trying to return to normalcy.
Third, the U.S. presidential election is less than three weeks away. Historically, stock markets have remained volatile in the month before the election. Market participants generally choose to hold cash instead of investing in risky assets like equities while assessing the economic and financial consequences of the election result.
At this stage, wouldn’t it be a safer strategy to look for stocks that are winners and have the potential to gain further?
Sounds Good? Here’s How to Execute It:
One should primarily target stocks that have freshly been on a bull run. Actually, stocks seeing price strength recently have a high chance of carrying the momentum forward.
If a stock is continuously witnessing an uptrend, there must be a solid reason or else it would have probably crashed. So, looking at stocks that are capable of beating the benchmark that they have set for themselves seems rational.
However, recent price strength alone cannot create magic. Therefore, you need to set other relevant parameters to create a successful investment strategy.
Here’s how you should create the screen to shortlist the current as well as the potential winners.
Percentage Change in Price (4 Weeks) greater than zero: This criterion shows that the stock has moved higher in the last four weeks.
Percentage Change Price (12 Weeks) greater than 10: This indicates that the stock has seen momentum over the last three months. This lowers the risk of choosing stocks that may have drawn attention due to the overwhelming performance of the overall market in a very short period.
Zacks Rank 1: No matter whether market conditions are good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.
Average Broker Rating 1: This indicates that brokers are also highly hopeful about the stock’s future performance.
Current Price greater than 5: The stocks must all be trading at a minimum of $5.
Current Price/ 52-Week High-Low Range more than 85%: This criterion filters stocks that are trading near their respective 52-week highs. It indicates that these are strong enough in terms of price.
Just these few criteria have narrowed down the search from over 7,700 stocks to just 9.
Here we present five out of those nine stocks:
Daqo New Energy Corp. (DQ - Free Report) manufactures and sells polysilicon to photovoltaic product manufactures in China. It offers ready-to-use and packaged polysilicon to meet crucible stacking, pulling and solidification products.
The stock price has soared 76.6% in the past four weeks. The company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved 5.7% over the last 30 days.
Surface Oncology Inc. (SURF - Free Report) is a clinical-stage immuno-oncology company. It develops therapies for the treatment of cancer. The stock price has jumped 35.6% in the past four weeks. The company has expected earnings growth of 63.5% for the current year. The Zacks Consensus Estimate for the current year has improved 5.3% over the last 60 days.
Covenant Logistics Group Inc. (CVLG - Free Report) provides truckload transportation and brokerage services primarily in the continental United States. It offers expedited and dedicated services. The stock price has climbed 20.6% in the past four weeks. The company has expected earnings growth of 60.7% for the current year. The Zacks Consensus Estimate for the current year has improved 78.2% over the last 30 days.
Herc Holdings Inc. (HRI - Free Report) operates as an equipment rental supplier primarily in the United States and internationally. It rents aerial, earthmoving, material handling, trucks and trailers, air compressors, compaction, and lighting equipment.
The stock price has gained 7.6% in the past four weeks. Although the company has negative expected earnings growth for the current year, its growth rate is 27.1% for next year. The Zacks Consensus Estimate for the current year has improved 4.4% over the last 30 days.
Castle Biosciences Inc. (CSTL - Free Report) is a commercial-stage dermatological cancer, develops and commercializes diagnostic and prognostic tests for cancers. The stock price has risen 4.6% in the past four weeks. The company has expected earnings growth of 47.6% for the current year. The Zacks Consensus Estimate for the current year has improved 9% over the last 60 days.
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.