When investors evaluate the potential of a stock to offer returns, they primarily consider earnings and valuation multiples. At the same time, measuring the performance of such a stock relative to its industry or peers assumes significance.
On such comparison, if we find that a stock is unable to match up to wider sectoral growth, it might be better to avoid it. On the other hand, outperformers should be incorporated into your portfolio, since they have a higher chance of securing significant returns. Picking a stock that has been outperforming its peers ensures 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 over a period of 1 to 3 months at the least and having solid fundamentals indicate room for growth. These are the best ways to go about this strategy.
Finally, it is important to find out whether analysts are optimistic about the upcoming earnings results 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.
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, 4 weeks and 1 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 nine stocks that made it through the screen:
SYNNEX Corp. (SNX - Snapshot Report) : Headquartered in Fremont, CA, SYNNEX is a global information technology supply chain services company that provides a wide array of services to resellers and original equipment manufacturers or OEMs. The company has a VGM score of “A” and an excellent earnings surprise history. It surpassed estimates in each of the last four quarters at an average rate of 4.68%.
Worthington Industries Inc. (WOR - Snapshot Report) : A leading value-added steel processor and manufacturer of metals products in the U.S., Columbus, OH-based Worthington Industries has a VGM score of “A”. Over the past 30 days, the Zacks Consensus Estimate for fiscal 2017 and 2018 increased 18% and 19%, respectively, to $3.14 and $3.06 per share.
Casella Waste Systems Inc. (CWST - Snapshot Report) : Headquartered in Rutland, VT, Casella Waste Systems is an integrated solid waste services and recycling company in the northeastern U.S. providing services to residential, commercial, municipal, and industrial customers. The company has a VGM score of “A” and surprised earnings to the upside in each of the last two quarters.
Francesca's Holdings Corp. (FRAN - Snapshot Report) : Founded in 1999 and based in Houston, TX, Francesca's Holdings operates more than 600 retail boutique chains in the U.S. that sells apparel, jewelry, accessories, and gifts to female customers. The fiscal 2017 Zacks Consensus Estimate for this company is $1.00, representing 8.85% earnings per share growth over fiscal 2016. The next fiscal year’s average forecast is $1.12, pointing to 11.98% growth. Finisar has a VGM score of “A”.
Green Plains Partners L.P. (GPP - Snapshot Report) : Green Plains Partners is a master limited partnership providing fee-based ethanol fuel storage, terminal and transportation services. Carrying a VGM score of “B”, this Omaha, NE headquartered partnership’s expected EPS growth rate for 3 to 5 years is currently 15% –– comfortably ahead of the industry growth rate of 11.40%.
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.
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