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 1 to 3 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, four weeks and one 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 (Strong Buy) 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 the three stocks that made it through the screen:
Verso Corporation (VRS - Free Report) : A leading North American producer of coated paper, Verso Corporation has a VGM Score of A. Over 30 days, the Miamisburg, OH-based company has seen the Zacks Consensus Estimate for 2018 and 2019 increase 53.7% and 46.7%, to $3.09 and $4.68 per share, respectively.
General Finance Corporation (GFN - Free Report) : General Finance Corporation is engaged in the lease and sale of portable storage containers, portable container buildings, portable liquid containers, and freight containers. The FY 2019 Zacks Consensus Estimate for this Pasadena, CA-based company is 23 cents, representing some 283.3% earnings per share growth over FY 2018. Next year’s (FY 2020) average forecast is 41 cents, pointing to another 78.3% growth. General Finance Corporation has a VGM Score of B.
WellCare Health Plans, Inc. (WCG - Free Report) : WellCare Health Plans offers government-sponsored managed care services – Medicaid, Medicare Advantage and Medicare PDP – to eligible families and individuals. Sporting a VGM Score of B, this Tampa, FL-headquartered company’s expected EPS growth rate for three to five years currently stands at 15.4%, comparing favorably with the industry's growth rate of 12.9%.
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.