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Market Crash Worries? Try 3 Relative Price Strength Stocks

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The U.S. stock markets had their worst week since March 2020, as investors grappled with recessionary fears. In the wake of the central bank deciding to hike the interest rate by a record-high 75 basis points in June and the possibility of doing the same in July, the markets came under extreme pressure. The S&P 500 Index ended deep in the red, with the benchmark falling 5.8% for the week.

In addition to fears that the Fed’s aggressive monetary stance to fight mounting inflation could push the economy into a recession, A few weak economic data also worsened the situation. Per a large section of market watchers, prolonged supply-chain devastation stemming from China’s stringent COVID-19 curbs and the termination of the easy-money policy are likely to reduce aggregate demand, slowing the economy in the process. In other words, it is likely that the mayhem will continue in the near term amid growing concerns about rising interest rates and economic sluggishness.

For investors who might want to stay exposed to the market during this uncertain phase, it is time to focus on good investment opportunities. One of the ways such potential plays could be identified is to look for signs of relative price strength.

Relative Price Strength Strategy

Whether a stock has the potential to offer considerable returns is determined primarily by its earnings and valuation ratios. Simultaneously, it is essential to check whether its price performance exceeds its peers or the industry average.

Upon 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 for 1 to 3 months at least and having solid fundamentals indicate room for growth and are the best ways to go about this strategy.

Finally, it is crucial to find out whether analysts are optimistic about the upcoming earnings 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, 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 the three stocks that made it through the screen:

Kronos Worldwide, Inc. (KRO - Free Report) : The Dallas, TX-based firm is a leading producer and marketer of TiO2, a pigment for providing whiteness, brightness and opacity in a broad range of products. Founded in 1916, Kronos Worldwide has a VGM Score of B.

For 2022, KRO has a projected earnings growth rate of 110.2%. Valued at around $2.1 billion, Kronos Worldwide shares have gained around 21.9% in a year.

AMN Healthcare Services, Inc. (AMN - Free Report) : AMN Healthcare is a provider of nurses, physicians and other medical professionals to hospitals and other allied facilities in the United States. The 2022 Zacks Consensus Estimate for this Dallas, TX-based firm indicates 30.3% year-over-year earnings per share growth. AMN has a VGM Score of B.

AMN Healthcare beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 15.6%, on average. AMN shares have added around 4.2% in a year.

Sanderson Farms, Inc. : Sanderson Farms is a poultry processing company that produces, processes, markets and distributes fresh and frozen chicken products. The fiscal 2022 Zacks Consensus Estimate for the Laurel, MS-based firm indicates 137.1% year-over-year earnings per share growth. SAFM has a VGM Score of A.

Sanderson Farms beat the Zacks Consensus Estimate for earnings in two of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 60.5%, on average. SAFM shares have gained around 25.1% in a year.

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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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