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 a 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 proves to be lucrative.
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 10 stocks that made it through the screen:
SolarEdge Technologies, Inc. SEDG: SolarEdge Technologies is a premier supplier of inverters and power optimizers to the solar industry. The 2020 Zacks Consensus Estimate for this Israel-headquartered company is $5.64, representing 27% earnings per share growth over 2019. Next year’s average forecast is $6.57 pointing to another 16.6% growth. SolarEdge Technologies has a VGM Score of B.
Mr. Cooper Group Inc. COOP: An originator and service provider of home mortgages, Mr. Cooper Group has a VGM Score of B. Over 30 days, the TX-based company has seen the Zacks Consensus Estimate for 2020 and 2021 increase 74% and 84%, to $4.35 and $4.60 per share, respectively.
Synaptics Incorporated SYNA: Synaptics, headquartered in San Jose, CA, is a leading provider of capacitive sensors, which aid people to interact with different computing, communications, entertainment, wireless and other electronic devices. The firm has a VGM Score of B and a solid earnings surprise history having surpassed estimates in each of the last four quarters, the average being 36.1%.
Legg Mason, Inc. LM: Legg Mason is a global asset management firm focused on the growth and preservation of its clients' capital through its proprietary mutual funds and separately-managed accounts. Sporting a VGM Score of B, this Baltimore, MD-headquartered company’s expected EPS growth rate for three to five years currently stands at 13.2%, comparing favorably with the industry's growth rate of 11.4%.
Anixter International Inc. AXE: Founded in 1957 and headquartered in Glenview, IL, Anixter International engages in the sales of communications and security products, as well as electrical and electronic cable and wire. 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 23.8%, 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.