Back to top

Image: Bigstock

5 Stocks That Look Appealing on Relative Price Strength

Read MoreHide Full Article

Fears are growing over the impact of the novel coronavirus (COVID-19) on business as the raging pandemic is crushing economies and destroying equities. In the meantime, oil prices are experiencing growing pains with the contagion-induced lockdown crippling demand amid a supply glut. In a nutshell, there is no escaping the resulting chaos in the markets.

While the volatility and uncertainty will continue until coronavirus recedes, it would be prudent not to panic and focus on the big picture. Agreed, some heartburn is inevitable but having an investing plan and sticking with it might turn this current selloff into an opportunity to buy solid names at depressed prices. One of the ways potential stock ideas could be identified is to look for signs of relative price strength.

The Relative Price Strength Approach

Whether a stock has the potential to offer considerable returns is determined primarily by its earnings and valuation ratios. Simultaneously, it is important to check whether its price performance exceeds its peers or the industry average.

Upon such comparison, if we find that a stock is unable to match up to wider sectoral growth despite having impressive earnings momentum or valuation multiples, it may be better to avoid it.

However, those outperforming their respective industries or benchmarks should be included in your portfolio, since they have a higher chance of securing significant returns. Picking a stock that outperforms its peers ensures that you have a winning option on your hands.

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.

Screening Parameters

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 fiveof the 13 stocks that made it through the screen:

Logitech International (LOGI - Free Report) : Logitech International is a global leader in peripherals for personal computers and other digital platforms. The FY 2020 Zacks Consensus Estimate for this Switzerland-based company is $2.10, indicating 4.5% earnings per share growth over FY 2019. Next fiscal year’s average forecast is $2.26 pointing to another 7.6% growth. Logitech International has a VGM Score of B.

MACOM Technology Solutions Holdings, Inc. (MTSI - Free Report) : a provider of power analog semiconductor solutions to varied markets, MACOM has a VGM Score of B. Over 30 days, the Lowell MA-based company has seen the Zacks Consensus Estimate for FY 2020 and FY 2021 increase 57.5% and 22.2%, to 63 cents and 88 cents per share, respectively.

Murphy USA Inc.  (MUSA - Free Report) : Murphy USA, headquartered in El Dorado, AR, is a leading independent retailer of motor fuel and convenience merchandise in the United States. The firm has a VGM Score of A and solid earnings surprise history having surpassed estimates in three of the last four quarters, the average being 16.6%.

Vertex Pharmaceuticals Incorporated (VRTX - Free Report) : Vertex Pharmaceuticals is focused on the discovery, development, and commercialization of small molecule drugs targeting serious diseases, with the main area of focus is cystic fibrosis. Sporting a VGM Score of B, this Boston, MA-headquartered company’s expected EPS growth rate for three to five years currently stands at 28.2%, comparing favorably with the industry's growth rate of 16.4%.

The Clorox Company (CLX - Free Report) : Founded in 1913 and headquartered in Oakland, CA, The Clorox Company is engaged in the production, marketing and sale of consumer products in the U.S. and international markets. The firm has a VGM Score of B and an excellent earnings surprise history having surpassed estimates in each of the last four quarters. Earnings surprise was 6.6%, on average.

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.

Published in