The year 2016 invited investors to savor varied aspects of market dynamics in a considerably short span, replete with sharp twists and turns. The start to the year was tormenting for most stock market investors with crude oil plunging to the core, reaching $34 a barrel.

How it started to ricochet, reached $53 a barrel and took the trophy of a ‘historic rebound’ in the same year, is a different story altogether. In between, we observed how the yellow metal that kick started the year on a bullish mode, so quickly lost its lure in the middle.

As if that wasn't enough, the foreign exchange market was on a roller coaster ride too since the beginning of the last year, thanks to all the economic and political chaos across the globe. A recent FXSTREET article stated that “The US dollar weakened sharply in the first six months on concerns of a sharp slowdown in US growth triggered by the emerging crisis in January-February and then the Brexit vote in June.”

Amid all the erratic market movement, market participants were striving to align their investments strategies to curb losses. So they somehow overlooked the areas that gradually showed improvement. 

Thanks to the rally in oil prices and a positive set of data, particularly the jobs report that speaks of a recovering U.S. economy, the second half of 2016 penned a different story all together. With the 2016 presidential election finally over, the U.S. dollar has also started to appreciate.

And with OPEC and others agreeing on production cut to curb a prolonged oversupply issue, we expect much brighter days ahead in 2017 in terms of an oil price uptrend. No wonder, the result is a prominent recovery in the stock market that is predominantly banking on the rallying energy and financial stocks.

How to Make a Smart Investment

Be it Donald Trump’s commitments or the Fed’s policy-related changes or even rising earnings expectations for the fourth quarter, there is enough hope that this bullish trend will prevail. However, going by the past one year’s intermittent market, the surprise global incidents and their impact on trading, smart investment is clearly becoming a challenge. Needless to say, this is becoming even more baffling for market participants, when the nation is none other than the United States that drives one of the most ‘efficient market’ mechanisms of the world.

With information reaching every sphere of the investment world, investors are more in need for new and unconventional ideas to crack this closely efficient market mechanism and benefit out of it.

Screening Criteria

In this write-up, we have picked five stocks apparently not in the limelight, as they traded lower than the S&P 500 index through the past one year. In fact, these stocks gave a dull performance even in the second half of 2016 when other stocks in the universe were on a recovery mode. However, based on their strong fundamentals, strategic implementation, planned execution, and certain positive catalysts, they carry a huge upside potential and a high probability of outperforming the S&P 500 market index in the coming days.

These stocks currently flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of ‘A’ or ‘B’. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. Their market capitalization is greater than $1 billion, testifying to their strong liquidity. The 2017 estimate revision trend is significantly positive and earnings growth expectation is above the S&P 500.

Sucampo Pharmaceuticals, Inc.

Shares of this global biopharmaceutical company and developer and marketer of AMITIZA have been hammered in the past one year. Entangled in several issues including pipeline setbacks throughout this period, the stock consistently traded below the S&P 500 market trend and plunged 21.63% in contrast to the S&P 500’s gain of 8.97%.

However, the growth prospects of the company’s sole marketed product Amitiza look promising with Sucampo working on expanding the label and penetrating into new markets. Moreover, the company’s collaborations with firms like Takeda and Mylan for the commercialization of Amitiza is a big positive. In addition, through its agreement with Cancer Prevention Pharmaceuticals, the company gained an exclusive option to develop and commercialize its combination, CPP-1X/sulindac, in North America.

The company flaunts a Zacks Rank #1 and a VGM Score of ‘A’. Moreover, its expected growth rate for the current year is 42.21%, which is higher than the S&P 500’s 8.7%. The stock’s estimate revision trend is also positive with the Zacks Consensus Estimate for 2017 earnings increasing 6.6% over the last 30 days.

Insulet Corporation (PODD Quick QuotePODD - Free Report)

This medical device maker and a popular name in the field of diabetic therapy fell due to several factors during the past one year. Shares of this nearly $2.2-billion-market-capital company dipped 0.34% in 2016.

However, the stock is expected to revive in the coming days like many other diabetic device makers banking on the enormous growth prospects of this niche market. Particularly, continued innovation and new product launch activity should boost the company’s growth in 2017. We also believe that the company’s revolutionary tubeless insulin pump Omnipod will boost its global growth momentum on an expansion in the existing markets and significant traction in new markets.

Insulethas a VGM Score of ‘B’ and an expected growth rate of 61.43% for the current year. The Zacks Consensus Estimate for its current year earnings increased 5.94% over the last 30 days. The company carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Western Refining, Inc.

Shares of this independent refiner and marketer of refined petroleum products in the Southwestern and Mid-Atlantic regions of the U.S., bled during the past year. Although the stock recovered sharply of late, it still failed to meet the S&P 500’s gain over the year.

However, we believe Western Refining will be a solid bet now based on its prospects ahead, thanks to its recently announced $4.1 billion merger with Tesoro. This will lead to the creation of a downstream powerhouse that will account for about 6% of crude processing capacity in the U.S. with attractive exposure to the prolific Permian Basin of West Texas, an area that continues to be profitable even at the current low oil prices.

The company carries a Zacks Rank #2 and a VGM Score of ‘A.’ Its expected growth rate for the current year is 43.51%. The Zacks Consensus Estimate for its current year earnings increased 17.82% over the last 30 days.

PennyMac Mortgage Investment Trust (PMT Quick QuotePMT - Free Report)

This mortgage real estate investment trust (REIT) also had a tough time in 2016 underperforming the S&P 500 index over this period. The stock managed to gain 7.27% last year but traded below the S&P 500 index.

Yet, we are looking forward to PennyMac’s performance in 2017 which should strengthen on the back of its newer strategies, thecorrespondent production business and investments including GSE credit risk transfer.

The company has a$1.1 billion market cap, a Zacks Rank #1 and a VGM Score of ‘A.’ Its expected growth rate for the current year is 70.93%. The stock’s estimate revision trend is also positive with the Zacks Consensus Estimate for earnings in 2017 increasing 7.69% over the last 30 days.

Extended Stay America, Inc.

Extended Stay America is one of the leading owner/operators of company-branded hotels in North America. Like all other stocks in our screening list, shares of this stock also underperformed the S&P 500 index throughout 2016. This was primarily on account of a gloomy lodging business scenario. The stock managed to grow a mere 1.57% over this entire period.

However, with the economy reviving, we are optimistic about the stock for the coming months. This $3.1-billion-market-cap company currently sports a Zacks Rank #1 and has a VGM Score of ‘A.’ Its expected growth rate for the current year is 8.88% compared with the S&P 500’s 8.7%. The stock’s estimate revision trend is also positive with the Zacks Consensus Estimate for earnings in 2017 increasing 9.6% over the last 30 days.

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