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How to Find Winning Stocks During Market Pullbacks
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It’s been a solid start to the first-quarter earnings season.
Still, despite the positive action today, the major U.S. indexes remain in the midst of their first pullback of 2024.
The truth is that these types of corrections are normal and necessary, particularly after such a strong start to the year. Instead of riding some of the more popular and aggressive stocks downward in the hopes of a reversal, it’s a good idea to identify the leaders in the current market environment.
It can be very difficult to determine the length and severity of pullbacks and corrections. We are much better off adjusting to what the market gives us, rather than attempting to predict what will happen.
When the major indexes experience a pullback, three out of four stocks tend to follow the market’s overall trend and will also decline in price. Moreover, growth names can drop three or even four times as much as the major market indices.
That’s why it’s so important to detect which stocks are bucking the trend, showing relative strength even during times of volatility.
But how do we identify these stocks?
Finding Winners in Turbulent Times
We can start by targeting leading industry groups. The Zacks Natural Foods Products industry currently ranks in the top 10% out of approximately 250 industry groups. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months.
Also note the favorable characteristics for this group below:
Image Source: Zacks Investment Research
Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.
We can further narrow down our list of potential stocks by identifying those that are showing relative strength and hitting 52-week highs. Stocks that are trading at new 52-week highs tend to continue their price uptrend. It’s the market’s way of confirming that higher highs are in store.
One such stock that is displaying all of these traits is Sprouts Farmers Market (SFM - Free Report) . The grocer provides natural and organic food products primarily in the United States. The company offers fresh produce, meats, seafood, dairy, cheeses, alcohol, vitamins, and other supplements.
SFM stock is showing relative strength and hitting a series of 52-week highs:
Image Source: StockCharts
Sprouts Farmers Market is positioning itself for further growth, as the natural foods grocer opened 6 new stores in the fourth quarter of 2023. The company plans to open 35 new stores in 2024 and has invested heavily to improve operational efficiencies, highlighted by its Fresh Item Management Technology which deploys computer-assisted ordering methods.
Earnings Estimates and Improving Outlook
A Zacks #2 stock (Buy), SFM has established an enviable track record of surpassing earnings estimates, delivering a trailing four-quarter average earnings surprise of 9.99%. Consistently beating earnings estimates is a recipe for success.
Analysts covering SFM have increased their EPS estimates for the company’s first quarter by 1.01% in the past 60 days. The Zacks Consensus Estimate now stands at $1.00/share, reflecting potential growth of 2.04% relative to the year-ago period. Revenues are projected to increase 6.12% to $1.84 billion.
Image Source: Zacks Investment Research
Sprouts Farmers Market is set to report the quarterly results next week on May 1st.
Bottom Line
It’s paramount to identify winning stocks during market pullbacks, as they will typically lead the next leg up once volatility subsides. We can locate these names by targeting leading industry groups and stocks that are showing relative strength.
Sprouts Farmers Market certainly fits the bill. The healthy grocer is also displaying solid fundamentals and witnessing positive earnings estimate revisions, as growth appears set to continue in the quarters ahead. Make sure to put the various Zacks systems to good use to uncover leading stocks like SFM as we head deeper into the Q1 earnings season.
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How to Find Winning Stocks During Market Pullbacks
It’s been a solid start to the first-quarter earnings season.
Still, despite the positive action today, the major U.S. indexes remain in the midst of their first pullback of 2024.
The truth is that these types of corrections are normal and necessary, particularly after such a strong start to the year. Instead of riding some of the more popular and aggressive stocks downward in the hopes of a reversal, it’s a good idea to identify the leaders in the current market environment.
It can be very difficult to determine the length and severity of pullbacks and corrections. We are much better off adjusting to what the market gives us, rather than attempting to predict what will happen.
When the major indexes experience a pullback, three out of four stocks tend to follow the market’s overall trend and will also decline in price. Moreover, growth names can drop three or even four times as much as the major market indices.
That’s why it’s so important to detect which stocks are bucking the trend, showing relative strength even during times of volatility.
But how do we identify these stocks?
Finding Winners in Turbulent Times
We can start by targeting leading industry groups. The Zacks Natural Foods Products industry currently ranks in the top 10% out of approximately 250 industry groups. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months.
Also note the favorable characteristics for this group below:
Image Source: Zacks Investment Research
Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.
We can further narrow down our list of potential stocks by identifying those that are showing relative strength and hitting 52-week highs. Stocks that are trading at new 52-week highs tend to continue their price uptrend. It’s the market’s way of confirming that higher highs are in store.
One such stock that is displaying all of these traits is Sprouts Farmers Market (SFM - Free Report) . The grocer provides natural and organic food products primarily in the United States. The company offers fresh produce, meats, seafood, dairy, cheeses, alcohol, vitamins, and other supplements.
SFM stock is showing relative strength and hitting a series of 52-week highs:
Image Source: StockCharts
Sprouts Farmers Market is positioning itself for further growth, as the natural foods grocer opened 6 new stores in the fourth quarter of 2023. The company plans to open 35 new stores in 2024 and has invested heavily to improve operational efficiencies, highlighted by its Fresh Item Management Technology which deploys computer-assisted ordering methods.
Earnings Estimates and Improving Outlook
A Zacks #2 stock (Buy), SFM has established an enviable track record of surpassing earnings estimates, delivering a trailing four-quarter average earnings surprise of 9.99%. Consistently beating earnings estimates is a recipe for success.
Analysts covering SFM have increased their EPS estimates for the company’s first quarter by 1.01% in the past 60 days. The Zacks Consensus Estimate now stands at $1.00/share, reflecting potential growth of 2.04% relative to the year-ago period. Revenues are projected to increase 6.12% to $1.84 billion.
Image Source: Zacks Investment Research
Sprouts Farmers Market is set to report the quarterly results next week on May 1st.
Bottom Line
It’s paramount to identify winning stocks during market pullbacks, as they will typically lead the next leg up once volatility subsides. We can locate these names by targeting leading industry groups and stocks that are showing relative strength.
Sprouts Farmers Market certainly fits the bill. The healthy grocer is also displaying solid fundamentals and witnessing positive earnings estimate revisions, as growth appears set to continue in the quarters ahead. Make sure to put the various Zacks systems to good use to uncover leading stocks like SFM as we head deeper into the Q1 earnings season.