Wall Street seems to be carrying on from where it left off in 2019, with the bull run showing no signs of relenting despite the coronavirus outbreak. All three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — look unstoppable in their northbound movement. A stable U.S. economy, an accommodative Fed and better-than expected corporate earnings and guidance is only going to add fuel to the momentum.
More importantly, despite the outbreak of the coronavirus, total earnings of the S&P 500 index for the ensuing first-quarter 2020, are now expected to be up 1% on 5% higher revenues year over year. Consequently, all three major stock indexes achieved several fresh highs this year. In fact, the benchmark S&P 500 has recorded 14 highs so far this year.
At this stage, wouldn’t it be a safer strategy to look for stocks that are winners currently and have the potential to gain further?
Sounds good? Here’s how to execute it:
One should primarily target stocks that have recently been on a bull run. Actually, stocks seeing price strength recently have a high chance of carrying the momentum forward.
If a stock is continuously witnessing an uptrend, there must be a solid reason or else it would have probably crashed. So, looking at stocks that are capable of beating the benchmark that they have set for themselves seems 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.
Just these few criteria have narrowed down the search from over 7,700 stocks to just nine.
Here we present five stocks out of the nine:
Daqo New Energy Corp. DQ manufactures and sells polysilicon to photovoltaic product manufactures in China. It offers ready-to-use polysilicon and packaged to meet crucible stacking, pulling and solidification products.
The stock price has climbed 46.1% in the past four weeks. The company has an expected earnings growth of 353.7% for the current year. The Zacks Consensus Estimate for the current year has improved 6.4% over the past 30 days.
The Bancorp Inc. TBBK is federally insured commercial bank that focuses on service to small and mid-size businesses and their principals in the Philadelphia-Wilmington market area and on private-label affinity group programs, including merchant card servicing.
The stock price has jumped 12.1% in the past four weeks. The company has an expected earnings growth rate of 22.6% for the current year. The Zacks Consensus Estimate for the current year has improved 7.4% over the past 30 days.
Universal Technical Institute Inc. UTI provides postsecondary education for students seeking careers as professional automotive, diesel, collision repair, motorcycle and marine technicians in the United States.
The stock price has surged 11.6% in the past four weeks. The company has an expected earnings growth rate of 125% for the current year (ending September 2020). The Zacks Consensus Estimate for the current year has improved 44.4% over the past 30 days.
First Western Financial Inc. MYFW provides private banking, personal trust, investment management, mortgage loans and institutional asset management services. It operates through three segments: Wealth Management, Capital Management and Mortgage.
The stock price has advanced 9.9% in the past four weeks. It has an expected earnings growth rate of 22.5% for the current year. The Zacks Consensus Estimate for the current year has improved 0.7% in the past 30 days.
Forterra Inc. manufactures and sells pipe and precast products in the United States, Canada, and Mexico. It operates through Drainage Pipe & Products and Water Pipe & Products segments.
The stock price has gained 4.3% in the past four weeks. The company has an expected earnings growth rate of 680% for the current year. The Zacks Consensus Estimate for the current year has improved by 1.7% over the past 30 days.
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.
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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.