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 (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 five stocks that made it through the screen:
Tempur Sealy International, Inc. (TPX - Free Report) : Tempur Sealy is a premier manufacturer, marketer and distributor of bedding products globally. The 2020 Zacks Consensus Estimate for this Lexington, KY-based company is $5.66, indicating 41.2% earnings per share growth over 2019. Next year’s average forecast is $6.77 pointing to another 19.7% growth. Tempur Sealy has a VGM Score of A.
Twin River Worldwide Holdings, Inc. (TRWH - Free Report) : An owner and operator of casino gaming and horse racing facilities, Twin River Worldwide Holdings has a VGM Score of B. Over the past 30 days, the Providence, RI-based company has seen the Zacks Consensus Estimate for 2020 increase 36.8% to $1.86 per share.
Rite Aid Corporation (RAD - Free Report) : Rite Aid, headquartered in Camp Hill, PA, is one of the largest retail drugstores in the United States, based on revenues and number of outlets. The firm has a VGM Score of A and a solid earnings surprise history having surpassed estimates in three of the last four quarters, the average being 254.2%.
DaVita Inc. (DVA - Free Report) : DaVita is a leading provider of dialysis services in the United States to patients suffering from chronic kidney failure, also known as end stage renal disease (ESRD). Sporting a VGM Score of A, this Denver, CO-headquartered company’s expected EPS growth rate for three to five years currently stands at 20.4%, comparing favorably with the industry's growth rate of 12.5%.
United Therapeutics Corporation (UTHR - Free Report) : Founded in 1996 and headquartered in Silver Spring, MD, United Therapeutics engages in the development and commercialization of therapeutic products for patients with chronic and life-threatening diseases. The company has a VGM Score of B and an enviable earnings surprise history, having surpassed estimates in each of the last four quarters. Earnings surprise was 36.8%, on average.
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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.