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5 Excellent Bets on Relative Price Strength Strategy
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Following last week’s consumer price index data, there is little more optimism that the darkest days for the market may be behind us.
On Nov 10, the Bureau of Labor Statistics reported that CPI in October rose 0.4% month over month and 7.7% year over year, lighter than the consensus estimates of 0.5% and 7.9%, respectively. The encouraging data not only ushered in a silver lining for Wall Street but also significantly strengthened the fundamentals driving the ongoing stock market rally. Yesterday’s soft producer price index data — another inflation indicator — reinforced the same message.
As it is, there have been positive signs on other economic fronts too. U.S. GDP grew 2.6% in the third quarter, beating the consensus estimate of 2.2%. Moreover, the labor market is currently at the pre-pandemic level, while, despite several major headwinds, the overall management guidance in the third-quarter 2022 earnings season was fairly good.
However, we are not out of the woods, as inflation remains elevated with the headwind posed by higher interest rates. Based on the recent press conferences from Fed Chair Jerome Powell, the monetary policy body is not yet in the mood to pause (let alone reverse) interest rates
As such, extremely volatile trading in U.S. markets since the beginning of 2022 is expected to persist. Risks stemming from recession fears, geopolitical tensions and dwindling liquidity may also lead to a rough road for equities.
In the current jittery market environment, investors who might want to stay exposed to the equity setup should 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 five of the 15 stocks that made it through the screen:
Nine Energy Service, Inc. (NINE - Free Report) : Nine Energy Service is a provider of technical products and services to drillers of oil and gas wells. The 2022 Zacks Consensus Estimate for the Houston, TX-based firm indicates 121.4% year-over-year earnings per share growth. NINE has a VGM Score of A.
Nine Energy Service beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of 58.8%, on average. NINE shares have rocketed 480.7% in a year.
Asure Software, Inc. (ASUR - Free Report) : Based in Austin, TX, the company is a leading provider of Human Capital Management solutions. ASUR’s expected EPS growth rate for three to five years is currently 23%, which compares favorably with the industry's growth rate of 19%. ASUR has a VGM Score of B.
Notably, Asure Software beat the Zacks Consensus Estimate for earnings in each of the last four quarters. The company has a trailing four-quarter earnings surprise of 83.3%, on average. ASUR shares have gone down 21.1% in a year.
Belden Inc. (BDC - Free Report) : It is a provider of innovative signal transmission solutions. Belden has a VGM Score of B. Over the past 30 days, Saint Louis, MO-based BDC saw the Zacks Consensus Estimate for 2022 move up 4.8%.
Belden beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 12%. Valued at around $3.4 billion, BDC has lost 19.6% in a year.
Thermon Group Holdings, Inc. (THR - Free Report) : Thermon Group Holdings is a premier supplier of industrial heating solutions. The fiscal 2023 Zacks Consensus Estimate for this Austin, TX-based firm indicates 62.7% year-over-year earnings per share growth. THR has a VGM Score of B.
Thermon Group Holdings beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 67.1%, on average. THR shares have gained 4.1% in a year.
Universal Logistics Holdings, Inc. (ULH - Free Report) : It is a transporter of goods with operations spread throughout North America and Colombia. Universal Logistics Holdings has a VGM Score of B. Over the past 30 days, Warren, MI-based ULH saw the Zacks Consensus Estimate for 2022 move up 10.3%.
Universal Logistics beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 72.2%. Valued at around $970.4 million, ULH has surged 82.5% in a year.
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.
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.
Image: Bigstock
5 Excellent Bets on Relative Price Strength Strategy
Following last week’s consumer price index data, there is little more optimism that the darkest days for the market may be behind us.
On Nov 10, the Bureau of Labor Statistics reported that CPI in October rose 0.4% month over month and 7.7% year over year, lighter than the consensus estimates of 0.5% and 7.9%, respectively. The encouraging data not only ushered in a silver lining for Wall Street but also significantly strengthened the fundamentals driving the ongoing stock market rally. Yesterday’s soft producer price index data — another inflation indicator — reinforced the same message.
As it is, there have been positive signs on other economic fronts too. U.S. GDP grew 2.6% in the third quarter, beating the consensus estimate of 2.2%. Moreover, the labor market is currently at the pre-pandemic level, while, despite several major headwinds, the overall management guidance in the third-quarter 2022 earnings season was fairly good.
However, we are not out of the woods, as inflation remains elevated with the headwind posed by higher interest rates. Based on the recent press conferences from Fed Chair Jerome Powell, the monetary policy body is not yet in the mood to pause (let alone reverse) interest rates
As such, extremely volatile trading in U.S. markets since the beginning of 2022 is expected to persist. Risks stemming from recession fears, geopolitical tensions and dwindling liquidity may also lead to a rough road for equities.
In the current jittery market environment, investors who might want to stay exposed to the equity setup should 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 five of the 15 stocks that made it through the screen:
Nine Energy Service, Inc. (NINE - Free Report) : Nine Energy Service is a provider of technical products and services to drillers of oil and gas wells. The 2022 Zacks Consensus Estimate for the Houston, TX-based firm indicates 121.4% year-over-year earnings per share growth. NINE has a VGM Score of A.
Nine Energy Service beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of 58.8%, on average. NINE shares have rocketed 480.7% in a year.
Asure Software, Inc. (ASUR - Free Report) : Based in Austin, TX, the company is a leading provider of Human Capital Management solutions. ASUR’s expected EPS growth rate for three to five years is currently 23%, which compares favorably with the industry's growth rate of 19%. ASUR has a VGM Score of B.
Notably, Asure Software beat the Zacks Consensus Estimate for earnings in each of the last four quarters. The company has a trailing four-quarter earnings surprise of 83.3%, on average. ASUR shares have gone down 21.1% in a year.
Belden Inc. (BDC - Free Report) : It is a provider of innovative signal transmission solutions. Belden has a VGM Score of B. Over the past 30 days, Saint Louis, MO-based BDC saw the Zacks Consensus Estimate for 2022 move up 4.8%.
Belden beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 12%. Valued at around $3.4 billion, BDC has lost 19.6% in a year.
Thermon Group Holdings, Inc. (THR - Free Report) : Thermon Group Holdings is a premier supplier of industrial heating solutions. The fiscal 2023 Zacks Consensus Estimate for this Austin, TX-based firm indicates 62.7% year-over-year earnings per share growth. THR has a VGM Score of B.
Thermon Group Holdings beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 67.1%, on average. THR shares have gained 4.1% in a year.
Universal Logistics Holdings, Inc. (ULH - Free Report) : It is a transporter of goods with operations spread throughout North America and Colombia. Universal Logistics Holdings has a VGM Score of B. Over the past 30 days, Warren, MI-based ULH saw the Zacks Consensus Estimate for 2022 move up 10.3%.
Universal Logistics beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 72.2%. Valued at around $970.4 million, ULH has surged 82.5% in a year.
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
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.