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 in determining whether a stock’s price performance is better than its peers or the industry average.
If the 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 industries or benchmarks. This is because betting on a winner always increases the odds of winning.
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 one to three months at the least and having solid fundamentals indicate room for growth, and 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 15 stocks that made it through the screen:
Applied Materials Inc. (AMAT - Free Report) : Applied Materials, founded in 1967, one of the world’s largest suppliers of equipment for the fabrication of semiconductor, flat panel liquid crystal displays, and solar photovoltaic cells and modules. Sporting a VGM Score of A, this Santa Clara, CA-headquartered company’s expected EPS growth rate for three to five years currently stands at 17.1%, comparing favorably with the industry's growth rate of 15.8%.
FormFactor Inc. (FORM - Free Report) : Headquartered in Livermore, CA, FormFactor is an original equipment manufacturer of automated wafer probe cards used in the back-end portion of the semiconductor manufacturing process. The company has a VGM Score of A and an excellent earnings surprise history. It has a 100% track of outperforming estimates over the last four quarters at an average rate of 18.2%.
Sanderson Farms Inc. (SAFM - Free Report) : One of the largest poultry producers in the U.S. with operations encompassing production, processing, marketing and distribution of fresh and frozen chicken products, Sanderson Farms, has a VGM Score of A. Over 30 days, the Laurel, MS-based firm has seen the Zacks Consensus Estimate for FY 2017 and FY 2018 increase 17% and 25.7%, to $13.07 and $10.46 per share, respectively.
Werner Enterprises Inc. (WERN - Free Report) : Headquartered in Omaha, NE, Werner Enterprises is one of the country’s leading carrier and logistics operator. The company has a VGM Score of A and an excellent earnings surprise history. It surpassed estimates in each of the last three quarters.
The Brink’s Company (BCO - Free Report) : Headquartered in Richmond, VA, The Brink’s Company is a leading provider of secure logistics and security solutions to retail businesses, financial institutions, and government agencies. The 2017 Zacks Consensus Estimate for this company is $3.03, representing some 35.3% earnings per share growth over 2016. Next year’s average forecast is $3.63, pointing to another 19.9% growth. The Brink’s Company has a VGM Score of B.
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.
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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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