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5 Top Stocks to Make the Most of Relative Price Strength
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Reeling under a plethora of headwinds, the S&P 500 extended its bearish run in April. It lost 8.8% of its value in a month that is normally considered strong for equities. Year to date, the market has experienced wild action and volatility. After robust returns during 2021, Wall Street has experienced a slowdown in 2022, with the index losing around 14% so far.
Despite raising the benchmark interest rate by 25 basis points in March, for the first time in three years, several measures of inflation have shown no signs of mitigating and remain elevated at their highest in four decades.
In addition to the stubborn inflationary pressure due to lingering global supply-chain disruptions, a more than hawkish Fed, the prolonged war between Russia and Ukraine and the resurgence of COVID-19 infections and lockdowns in China have raised serious questions about a near-term recession in the United States as well as the global economy. Even worse, both IMF and World Bank reduced their projections for the 2022 global economic growth rate in April.
It is likely that the mayhem will continue in the near term amid growing concerns of rising interest rates and economic sluggishness.
For investors who might want to stay exposed to the market during this uncertain phase, it is time to focus on good investment opportunities. One of the ways such potential plays could be identified is to look for signs of relative price strength.
Relative Price Strength Strategy
Whether a stock has the potential to offer considerable returns is determined primarily by its earnings and valuation ratios. Simultaneously, it is essential 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 for 1 to 3 months at least and having solid fundamentals indicate room for growth and are the best ways to go about this strategy.
Finally, it is crucial to find out whether analysts are optimistic about the upcoming earnings 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 five of the 36 stocks that made it through the screen:
ConocoPhillips (COP - Free Report) : The Houston, TX-based firm is a leading explorer and producer of oil and natural gas. Founded in 2002, ConocoPhillips has a VGM Score of A.
For 2022, COP has a projected earnings growth rate of 140.1%. Valued at around $123.8 billion, ConocoPhillips shares have gained around 87.9% in a year.
Southwest Airlines Co. (LUV - Free Report) : This is a passenger airline that provides scheduled air transportation in the United States and 'ten near-international' markets. Southwest Airlines has a VGM Score of B. Over the past 30 days, the Dallas, TX-based LUV saw the Zacks Consensus Estimate for 2022 move up 9.9%.
Southwest Airlines beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, the average being 33.5%. Valued at around $27.7 billion, LUV has lost some 25.2% in a year.
Reliance Steel & Aluminum Co. (RS - Free Report) : Reliance Steel is a leading metals service center company engaged in value-added materials management and metals processing services. The 2022 Zacks Consensus Estimate for this Los Angeles, CA-based firm indicates 11.8% year-over-year earnings per share growth. RS has a VGM Score of B.
Reliance Steel beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 13.8%, on average RS shares have rocketed around 22.3% in a year.
Avnet, Inc. (AVT - Free Report) : Avnet, based in Phoenix, AZ, is one of the world’s largest distributors of electronic components and computer products. The company’s expected EPS growth rate for three to five years is currently 37.2%, which compares favorably with the industry's growth rate of 16.8%. AVT has a VGM Score of B.
Notably, Avnet beat the Zacks Consensus Estimate for earnings in each of the last four quarters. The company has a trailing four-quarter earnings surprise of roughly 21.2%, on average. AVT shares have gone up around 3.2% in a year.
Huntsman Corporation (HUN - Free Report) : Huntsman is among the world's largest manufacturers of differentiated and commodity chemical products. The 2022 Zacks Consensus Estimate for The Woodlands, TX-based firm indicates 15% year-over-year earnings per share growth. HUN has a VGM Score of A.
Huntsman beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 12.6%, on average. HUN shares have gained around 15.8% in a year.
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.
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.
Image: Bigstock
5 Top Stocks to Make the Most of Relative Price Strength
Reeling under a plethora of headwinds, the S&P 500 extended its bearish run in April. It lost 8.8% of its value in a month that is normally considered strong for equities. Year to date, the market has experienced wild action and volatility. After robust returns during 2021, Wall Street has experienced a slowdown in 2022, with the index losing around 14% so far.
Despite raising the benchmark interest rate by 25 basis points in March, for the first time in three years, several measures of inflation have shown no signs of mitigating and remain elevated at their highest in four decades.
In addition to the stubborn inflationary pressure due to lingering global supply-chain disruptions, a more than hawkish Fed, the prolonged war between Russia and Ukraine and the resurgence of COVID-19 infections and lockdowns in China have raised serious questions about a near-term recession in the United States as well as the global economy. Even worse, both IMF and World Bank reduced their projections for the 2022 global economic growth rate in April.
It is likely that the mayhem will continue in the near term amid growing concerns of rising interest rates and economic sluggishness.
For investors who might want to stay exposed to the market during this uncertain phase, it is time to focus on good investment opportunities. One of the ways such potential plays could be identified is to look for signs of relative price strength.
Relative Price Strength Strategy
Whether a stock has the potential to offer considerable returns is determined primarily by its earnings and valuation ratios. Simultaneously, it is essential 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 for 1 to 3 months at least and having solid fundamentals indicate room for growth and are the best ways to go about this strategy.
Finally, it is crucial to find out whether analysts are optimistic about the upcoming earnings 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 five of the 36 stocks that made it through the screen:
ConocoPhillips (COP - Free Report) : The Houston, TX-based firm is a leading explorer and producer of oil and natural gas. Founded in 2002, ConocoPhillips has a VGM Score of A.
For 2022, COP has a projected earnings growth rate of 140.1%. Valued at around $123.8 billion, ConocoPhillips shares have gained around 87.9% in a year.
Southwest Airlines Co. (LUV - Free Report) : This is a passenger airline that provides scheduled air transportation in the United States and 'ten near-international' markets. Southwest Airlines has a VGM Score of B. Over the past 30 days, the Dallas, TX-based LUV saw the Zacks Consensus Estimate for 2022 move up 9.9%.
Southwest Airlines beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, the average being 33.5%. Valued at around $27.7 billion, LUV has lost some 25.2% in a year.
Reliance Steel & Aluminum Co. (RS - Free Report) : Reliance Steel is a leading metals service center company engaged in value-added materials management and metals processing services. The 2022 Zacks Consensus Estimate for this Los Angeles, CA-based firm indicates 11.8% year-over-year earnings per share growth. RS has a VGM Score of B.
Reliance Steel beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 13.8%, on average RS shares have rocketed around 22.3% in a year.
Avnet, Inc. (AVT - Free Report) : Avnet, based in Phoenix, AZ, is one of the world’s largest distributors of electronic components and computer products. The company’s expected EPS growth rate for three to five years is currently 37.2%, which compares favorably with the industry's growth rate of 16.8%. AVT has a VGM Score of B.
Notably, Avnet beat the Zacks Consensus Estimate for earnings in each of the last four quarters. The company has a trailing four-quarter earnings surprise of roughly 21.2%, on average. AVT shares have gone up around 3.2% in a year.
Huntsman Corporation (HUN - Free Report) : Huntsman is among the world's largest manufacturers of differentiated and commodity chemical products. The 2022 Zacks Consensus Estimate for The Woodlands, TX-based firm indicates 15% year-over-year earnings per share growth. HUN has a VGM Score of A.
Huntsman beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 12.6%, on average. HUN shares have gained around 15.8% in a year.
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.