Every investor wishes to have a magical portfolio of stocks with a one way ticket to success. But this is easier said than done. And when the market is as volatile as it is now, things may take a turn for the worse any moment.
No matter how disciplined and systematic investors are, equity market volatility will always manage to get the better of them. While a few lucky ones rake in the moolah, others fall victim to ad hoc strategies.
One could resort to commonly used techniques to find beaten down stocks that have the potential to recover faster than others. However, even such investment choices bear the risk of disappointment. Particularly, one could be stuck in a value trap if the hidden weaknesses in selected stock are not identified.
So, wouldn’t it be a safer strategy to look for stocks that are winners currently and have the potential to gain further?
Here’s how to execute it:
One should primarily look for stocks that are witnessing price increase. Actually, stocks seeing price strength recently have a high chance of carrying the momentum forward.
If a stock is continuously moving higher, there must be a good reason for the rise or else it probably would have fallen like the losers. So, looking at stocks that have already won the game and are capable of beating the benchmark that they have set is rational.
However, recent price strength alone cannot create magic. Therefore, you need to set other relevant parameters to create a successful investment strategy.
Here’s how you should create the screen to shortlist the current as well as the potential winners.
Percentage Change in Price (4 Weeks) greater than zero: This criterion shows that the stock has moved higher in the last four weeks.
Percentage Change Price (12 Weeks) greater than 10: This indicates that the stock has seen momentum over the last three months. This lowers the risk of choosing stocks that may have drawn attention due to the overwhelming performance of the overall market in a very short period.
Zacks Rank 1: No matter whether market conditions are good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.
Average Broker Rating 1: This indicates that brokers are also highly hopeful about the stock’s future performance.
Current Price greater than 5: The stocks must all be trading at a minimum of $5.
Current Price/ 52-Week High-Low Range more than 85%: This criterion filters stocks that are trading near their respective 52-week highs. It indicates that these are strong enough in terms of price.
Here are seven of the 16 stocks that made it through this screen:
FormFactor Inc. (FORM - Free Report) designs, develops, manufactures, sells and supports precision, high performance advanced semiconductor wafer probe cards. The company has surpassed the Zacks Consensus Estimate in the trailing four quarters with an average positive earnings surprise of 18.2%.
Pointer Telocation Ltd. (PNTR - Free Report) provides a range of services to insurance companies and automobile owners, including road-side assistance, vehicle towing, stolen vehicle retrieval, fleet management and other value added services. The company has surpassed the Zacks Consensus Estimate in the trailing four quarters with an average positive earnings surprise of 59.4%.
Kadant Inc. (KAI - Free Report) is a leading supplier of a range of products and systems for the global papermaking and paper-recycling industries, including de-inking systems, stock-preparation equipment, water-management systems, and papermaking accessories. The company has surpassed the Zacks Consensus Estimate in the trailing four quarters with an average positive earnings surprise of 19.3%.
Johnson Outdoors Inc. (JOUT - Free Report) is a leading global outdoor recreation company that turns ideas into adventure with innovative, top-quality products. In the last four quarters, the stock surpassed the Zacks Consensus Estimate thrice while missing the same on one occasion.
Columbus McKinnon Corporation (CMCO - Free Report) is a broad-line designer, manufacturer and supplier of sophisticated material handling products and integrated material handling solutions that are widely distributed to industrial and consumer markets worldwide. The stock has a mixed earnings surprise history. It beat the Zacks Consensus Estimate twice in the trailing four quarters while missing it on two other occasions. However, it pulled off an average positive earnings surprise of 10.7%.
Sun Hydraulics Corporation (SNHY - Free Report) is a leading designer and manufacturer of high-performance, screw-in hydraulic cartridge valves and manifolds, which control force, speed and motion as integral components in fluid power systems. The stock has a mixed earnings surprise history. It beat the Zacks Consensus Estimate twice in the trailing four quarters while missing it on the other two occasions. However, it pulled off an average positive earnings surprise of 3.5%.
Amtech Systems, Inc. (ASYS - Free Report) is engaged in the manufacture of several items of capital equipment, one of which is patented, used by customers in the manufacture of semiconductors. Last quarter, the company delivered a positive earnings surprise of 600%.
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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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