Investors always seek a winning strategy. However, finding such a strategy is easier said than done. When markets are shaken by widespread global growth concerns, it is difficult for even an insightful investor to come up with a foolproof approach.
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 safer 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 have recently been 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 & 2: No matter whether market conditions are good or bad, stocks with a Zacks Rank #1 (Strong Buy) and #2 (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 six of the nine stocks that made it through this screen:
MasTec, Inc. (MTZ - Free Report) is one of the largest providers of construction services to the telecommunications industry in the United States and sports a Zacks Rank #1. Last quarter, the company delivered a positive earnings surprise of 10.8%.
Enova International, Inc. (ENVA - Free Report) is a provider of online financial services. It offers loans to customers in the United States and in the United Kingdom, Australia and Canada. The Zacks Rank #2 stock delivered a positive earnings surprise of 23.8% last quarter.
Meta Financial Group, Inc. (CASH - Free Report) is the holding company for federally chartered savings bank MetaBank, Member FDIC. Last quarter, the company delivered a positive earnings surprise of 34.9%. The stock carries a Zacks Rank #2.
Eldorado Resorts, Inc. (ERI - Free Report) is a casino entertainment company. It provides casino and entertainment services primarily in Nevada and Louisiana, United States. The Zacks Rank #2 stock delivered a positive earnings surprise of 12.5% last quarter.
CommerceWest Bank (CWBK - Free Report) provides a wide range of specialized commercial banking and financial services to entrepreneurs and small- to mid-sized businesses in southern California. Last quarter, the company delivered a positive earnings surprise of 14.3%. The stock carries a Zacks Rank #2.
Southern First Bancshares, Inc. (SFST - Free Report) is the holding company for Greenville First Bank, N.A., a national banking association chartered under the laws of the United States. The Zacks Rank #2 stock delivered a positive earnings surprise of 10% last quarter.
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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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