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Load Up on These 5 Exceptional Relative Price Strength Stocks
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Lately, the market has been spooked by concerns of a near-term recession. The S&P 500 index fell 1.1% last week, marking its second consecutive weekly decline. Weak economic data also dented investors’ confidence in risky assets like equities.
In particular, consumer sentiment slumped to a six-month low in May. This is not good news for the American economy, as weak sentiment may result in a contraction in consumer spending going forward. Investors should know that consumer spending is the biggest driver of the U.S. economy, constituting more than 2/3 of its GDP.
On the other hand, the specter of inflation appears to be waning. However, we should avoid painting an overly optimistic picture by overstating the improvements. While we are well off the peaks we saw in 2022, we have apparently hit a bed of resistance. In other words, inflation is indeed coming down, but slowly. It means that another small rate hike cannot be ruled out.
We believe that more visibility regarding the future market direction will only be available post first-quarter 2023 earnings season, along with management guidance and business outlook.
Till then, investors who want to stay exposed to the equity setup should 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
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 for 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 industry or benchmark. 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 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 14 stocks that made it through the screen:
InterDigital, Inc. (IDCC - Free Report) : This is a pioneer in advanced mobile technologies that enables wireless communications and capabilities. The 2023 Zacks Consensus Estimate for Wilmington, DE-based IDCC indicates 96.7% year-over-year earnings per share growth. InterDigital has a VGM Score of A.
Over the past 30 days, InterDigital saw the Zacks Consensus Estimate for 2023 move up 118.1%. It beat the Zacks Consensus Estimate for earnings in each of the last four quarters. IDCC shares have moved up 36.6% in a year.
Taylor Morrison Home Corporation (TMHC - Free Report) : The company is a developer of real estate projects to go with administration, and acquisition of land and residential construction. Over the past 30 days, this Scottsdale, AZ-based firm saw the Zacks Consensus Estimate for 2023 move up 5.3%. TMHC has a VGM Score of B.
Taylor Morrison beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 17.3%, on average. TMHC shares have increased 55.4% in a year.
Nextracker Inc. (NXT - Free Report) : Based in Fremont, CA, the company is one of the biggest players in the solar tracking industry. Nextracker’s expected EPS growth rate for three to five years is currently 53.5%, which compares favorably with the industry's growth rate of 36.7%. NXT has a VGM Score of B.
Notably, the fiscal 2024 Zacks Consensus Estimate for Nextracker indicates 454.2% year-over-year earnings per share growth. The company has a market capitalization of $1.8 billion. NXT shares have gone up 32.4% in a year.
Green Brick Partners, Inc. (GRBK - Free Report) : This is a U.S. homebuilder that is active in Dallas-Forth Worth, Austin, and Atlanta metropolitan areas. Over the past 30 days, this Plano, TX-based firm saw the Zacks Consensus Estimate for 2023 move up 53.6%. GRBK has a VGM Score of B.
Green Brick Partners beat the Zacks Consensus Estimate for earnings in three of the last four quarters and missed in the other. It has a trailing four-quarter earnings surprise of roughly 44.2%, on average. GRBK shares have surged 121.4% in a year.
Ligand Pharmaceuticals Incorporated : Based in San Diego, CA, Ligand Pharmaceuticals is a biotechnology company whose business model is based on developing or acquiring royalty revenue-generating assets. LGND’s expected EPS growth rate for three to five years is currently 20%, which compares favorably with the industry's growth rate of 19%. Ligand Pharmaceuticals has a VGM Score of A.
LGND beat the Zacks Consensus Estimate for earnings in two of the last four quarters and missed in the other two. It has a trailing four-quarter earnings surprise of roughly 21.5%, on average. Ligand Pharmaceuticals shares have decreased 10.5% 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
Load Up on These 5 Exceptional Relative Price Strength Stocks
Lately, the market has been spooked by concerns of a near-term recession. The S&P 500 index fell 1.1% last week, marking its second consecutive weekly decline. Weak economic data also dented investors’ confidence in risky assets like equities.
In particular, consumer sentiment slumped to a six-month low in May. This is not good news for the American economy, as weak sentiment may result in a contraction in consumer spending going forward. Investors should know that consumer spending is the biggest driver of the U.S. economy, constituting more than 2/3 of its GDP.
On the other hand, the specter of inflation appears to be waning. However, we should avoid painting an overly optimistic picture by overstating the improvements. While we are well off the peaks we saw in 2022, we have apparently hit a bed of resistance. In other words, inflation is indeed coming down, but slowly. It means that another small rate hike cannot be ruled out.
We believe that more visibility regarding the future market direction will only be available post first-quarter 2023 earnings season, along with management guidance and business outlook.
Till then, investors who want to stay exposed to the equity setup should 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
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 for 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 industry or benchmark. 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 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 14 stocks that made it through the screen:
InterDigital, Inc. (IDCC - Free Report) : This is a pioneer in advanced mobile technologies that enables wireless communications and capabilities. The 2023 Zacks Consensus Estimate for Wilmington, DE-based IDCC indicates 96.7% year-over-year earnings per share growth. InterDigital has a VGM Score of A.
Over the past 30 days, InterDigital saw the Zacks Consensus Estimate for 2023 move up 118.1%. It beat the Zacks Consensus Estimate for earnings in each of the last four quarters. IDCC shares have moved up 36.6% in a year.
Taylor Morrison Home Corporation (TMHC - Free Report) : The company is a developer of real estate projects to go with administration, and acquisition of land and residential construction. Over the past 30 days, this Scottsdale, AZ-based firm saw the Zacks Consensus Estimate for 2023 move up 5.3%. TMHC has a VGM Score of B.
Taylor Morrison beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 17.3%, on average. TMHC shares have increased 55.4% in a year.
Nextracker Inc. (NXT - Free Report) : Based in Fremont, CA, the company is one of the biggest players in the solar tracking industry. Nextracker’s expected EPS growth rate for three to five years is currently 53.5%, which compares favorably with the industry's growth rate of 36.7%. NXT has a VGM Score of B.
Notably, the fiscal 2024 Zacks Consensus Estimate for Nextracker indicates 454.2% year-over-year earnings per share growth. The company has a market capitalization of $1.8 billion. NXT shares have gone up 32.4% in a year.
Green Brick Partners, Inc. (GRBK - Free Report) : This is a U.S. homebuilder that is active in Dallas-Forth Worth, Austin, and Atlanta metropolitan areas. Over the past 30 days, this Plano, TX-based firm saw the Zacks Consensus Estimate for 2023 move up 53.6%. GRBK has a VGM Score of B.
Green Brick Partners beat the Zacks Consensus Estimate for earnings in three of the last four quarters and missed in the other. It has a trailing four-quarter earnings surprise of roughly 44.2%, on average. GRBK shares have surged 121.4% in a year.
Ligand Pharmaceuticals Incorporated : Based in San Diego, CA, Ligand Pharmaceuticals is a biotechnology company whose business model is based on developing or acquiring royalty revenue-generating assets. LGND’s expected EPS growth rate for three to five years is currently 20%, which compares favorably with the industry's growth rate of 19%. Ligand Pharmaceuticals has a VGM Score of A.
LGND beat the Zacks Consensus Estimate for earnings in two of the last four quarters and missed in the other two. It has a trailing four-quarter earnings surprise of roughly 21.5%, on average. Ligand Pharmaceuticals shares have decreased 10.5% 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.