Investors generally gauge a stock’s potential returns by examining earnings growth and valuation multiples. At the same time, it’s important to measure the performance of such a stock relative to its industry or peers, or the appropriate benchmark.
If you see that a stock is underperforming on fundamental factors, then it would be prudent to move on and find a better alternative. However, those outperforming their respective sectors in terms of price should be selected because they stand a better chance to provide considerable returns.
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 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 24 stocks that made it through the screen:
Crocs, Inc. (CROX - Free Report) : Crocs is a maker of casual resin-based footwear and accessories. The 2019 Zacks Consensus Estimate for this Niwot, CO-based company is $1.18, representing some 37.2% earnings per share growth over 2018. Next year’s average forecast is $1.41 pointing to another 19.2% growth. Crocs has a VGM Score of A.
Sonic Automotive, Inc. (SAH - Free Report) : Sonic Automotive, headquartered in Charlotte, NC, is one of the leading automotive retailers in the United States, which sells new and used cars and light trucks, apart from offering warranties, service contracts, vehicle financing and insurance. The firm has a VGM Score of A and an excellent earnings surprise history having surpassed estimates in each of the last four quarters.
DaVita Inc. (DVA - Free Report) : DaVita is a leading provider of dialysis services in the U.S. to patients suffering from chronic kidney failure. Sporting a VGM Score of A, this Denver, CO-headquartered company’s expected EPS growth rate for three to five years currently stands at 22%, comparing favorably with the industry's growth rate of 12.10%.
Meritage Homes Corporation (MTH - Free Report) : A leading designer and builder of single-family accommodations in the United States, Meritage Homes has a VGM Score of A. Over 30 days, the Scottsdale, AZ-based company has seen the Zacks Consensus Estimate for 2019 and 2020 increase 9.6% and 10.3%, to $5.23 and $5.89 per share, respectively.
First American Financial Corporation (FAF - Free Report) : Founded in 1889 and headquartered in Santa Ana, CA, First American Financial serves homebuyers and sellers, real estate professionals, loan originators and servicers, commercial property professionals, homebuilders and others involved in residential and commercial property transactions with products and services specific to their needs. The company has a VGM Score of A and a solid earnings surprise history having surpassed estimates in each of the last four quarters.
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.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today
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.