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How to Profit From the Relative Price Strength Strategy
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Following a highly disappointing 2022, Wall Street ended the first month of 2023 with a solid rally. As a proof of this, the S&P 500 — which tracks the biggest U.S.-listed companies — posted the best January since 2019. In particular, favorable data for several measures of inflation, various soft economic prints and a resilient labor market propped up investor sentiment.
The recent numbers clearly indicate that wage rate, a major source of current inflation, is declining as expected by the Fed. To add to this, nonfarm payrolls from the U.S. government for the month of January bowled over expectations, while the unemployment rate has dropped to a 54-year low.
But this robust labor market gives permission to Fed Chair Powell and the other officials to keep raising interest rates. Instead of the central bank holding pat at a 4.75% high end of the Fed funds rate, now it’s much more likely the Fed will go to 5% and beyond.
In other words, we are not out of the woods yet, with softness in consumer spending and looming signs of slowdown playing spoilsport. Therefore, extremely volatile trading in U.S. markets is expected to continue for some time.
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
Earnings growth and valuation multiples are indeed important for investors to determine a stock's ability to offer considerable returns. But these are also essential for determining whether a stock’s price performance is better than its peers or the industry average.
If a stock’s performance is lacking that of the broader groups, despite impressive earnings growth or valuation multiples, then something must be wrong.
It’s always advisable to stay away from these stocks and bet on those that are outperforming their respective industry or benchmark. This is because betting on a winner always proves to be lucrative.
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 13 stocks that made it through the screen:
RenaissanceRe Holdings Ltd. (RNR - Free Report) : The company primarily provides property-catastrophe reinsurance to insurers and reinsurers globally on the basis of excess loss (coverage of losses over a specified limit). The 2023 Zacks Consensus Estimate for this Pembroke, Bermuda-based RNR indicates 219.2% year-over-year earnings per share growth. RNR has a VGM Score of B.
Over the past 30 days, RenaissanceRe saw the Zacks Consensus Estimate for 2023 move up 9.2%. It beat the Zacks Consensus Estimate for earnings in two of the last four quarters. RNR shares have gained 39.4% in a year.
United Rentals, Inc. (URI - Free Report) : Based in Stamford, CT, the company is the largest equipment rental provider in the world, with an integrated network of 1,521 locations in the United States, Canada and Europe. United Rental’s expected EPS growth rate for three to five years is currently 16.3%, which compares favorably with the industry's growth rate of 15.5%. URI has a VGM Score of A.
Notably, United Rentals Network beat the Zacks Consensus Estimate for earnings in three of the last four quarters. The company has a trailing four-quarter earnings surprise of 6.9%, on average. URI shares have gone up 37.1% in a year.
ATI Inc. (ATI - Free Report) : ATI is a diversified specialty materials and alloys producer. The 2023 Zacks Consensus Estimate for the Dallas, TX-based company indicates 10.1% year-over-year earnings per share growth. ATI has a VGM Score of A.
ATI beat the Zacks Consensus Estimate for earnings in three of the last four quarters. Over the past 30 days, the company saw the Zacks Consensus Estimate for 2023 move up 2.8%. ATI stock has lost 64.2% in a year.
Wabash National Corporation (WNC - Free Report) : The company is primarily engaged in the design and manufacture of a wide range of transportation solutions. The 2023 Zacks Consensus Estimate for this Lafayette, IN-based firm indicates 24% year-over-year earnings per share growth. WNC has a VGM Score of A.
Wabash beat the Zacks Consensus Estimate for earnings in three of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 40.1%, on average. WNC shares have surged 64.3% in a year.
O-I Glass, Inc. (OI - Free Report) : This is the largest manufacturer of glass containers in the world. O-I Glass has a VGM Score of B. Over the past 30 days, Perrysburg, OH-based OI saw the Zacks Consensus Estimate for 2023 move up 12.6%.
O-I Glass beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 16.5%. Valued at around $3.5 billion, OI has surged 59.8% 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
How to Profit From the Relative Price Strength Strategy
Following a highly disappointing 2022, Wall Street ended the first month of 2023 with a solid rally. As a proof of this, the S&P 500 — which tracks the biggest U.S.-listed companies — posted the best January since 2019. In particular, favorable data for several measures of inflation, various soft economic prints and a resilient labor market propped up investor sentiment.
The recent numbers clearly indicate that wage rate, a major source of current inflation, is declining as expected by the Fed. To add to this, nonfarm payrolls from the U.S. government for the month of January bowled over expectations, while the unemployment rate has dropped to a 54-year low.
But this robust labor market gives permission to Fed Chair Powell and the other officials to keep raising interest rates. Instead of the central bank holding pat at a 4.75% high end of the Fed funds rate, now it’s much more likely the Fed will go to 5% and beyond.
In other words, we are not out of the woods yet, with softness in consumer spending and looming signs of slowdown playing spoilsport. Therefore, extremely volatile trading in U.S. markets is expected to continue for some time.
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
Earnings growth and valuation multiples are indeed important for investors to determine a stock's ability to offer considerable returns. But these are also essential for determining whether a stock’s price performance is better than its peers or the industry average.
If a stock’s performance is lacking that of the broader groups, despite impressive earnings growth or valuation multiples, then something must be wrong.
It’s always advisable to stay away from these stocks and bet on those that are outperforming their respective industry or benchmark. This is because betting on a winner always proves to be lucrative.
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 13 stocks that made it through the screen:
RenaissanceRe Holdings Ltd. (RNR - Free Report) : The company primarily provides property-catastrophe reinsurance to insurers and reinsurers globally on the basis of excess loss (coverage of losses over a specified limit). The 2023 Zacks Consensus Estimate for this Pembroke, Bermuda-based RNR indicates 219.2% year-over-year earnings per share growth. RNR has a VGM Score of B.
Over the past 30 days, RenaissanceRe saw the Zacks Consensus Estimate for 2023 move up 9.2%. It beat the Zacks Consensus Estimate for earnings in two of the last four quarters. RNR shares have gained 39.4% in a year.
United Rentals, Inc. (URI - Free Report) : Based in Stamford, CT, the company is the largest equipment rental provider in the world, with an integrated network of 1,521 locations in the United States, Canada and Europe. United Rental’s expected EPS growth rate for three to five years is currently 16.3%, which compares favorably with the industry's growth rate of 15.5%. URI has a VGM Score of A.
Notably, United Rentals Network beat the Zacks Consensus Estimate for earnings in three of the last four quarters. The company has a trailing four-quarter earnings surprise of 6.9%, on average. URI shares have gone up 37.1% in a year.
ATI Inc. (ATI - Free Report) : ATI is a diversified specialty materials and alloys producer. The 2023 Zacks Consensus Estimate for the Dallas, TX-based company indicates 10.1% year-over-year earnings per share growth. ATI has a VGM Score of A.
ATI beat the Zacks Consensus Estimate for earnings in three of the last four quarters. Over the past 30 days, the company saw the Zacks Consensus Estimate for 2023 move up 2.8%. ATI stock has lost 64.2% in a year.
Wabash National Corporation (WNC - Free Report) : The company is primarily engaged in the design and manufacture of a wide range of transportation solutions. The 2023 Zacks Consensus Estimate for this Lafayette, IN-based firm indicates 24% year-over-year earnings per share growth. WNC has a VGM Score of A.
Wabash beat the Zacks Consensus Estimate for earnings in three of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 40.1%, on average. WNC shares have surged 64.3% in a year.
O-I Glass, Inc. (OI - Free Report) : This is the largest manufacturer of glass containers in the world. O-I Glass has a VGM Score of B. Over the past 30 days, Perrysburg, OH-based OI saw the Zacks Consensus Estimate for 2023 move up 12.6%.
O-I Glass beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 16.5%. Valued at around $3.5 billion, OI has surged 59.8% 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.