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5 Prudent Choices for Relative Price Strength Investors
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As many had expected, the Federal Reserve finally put a pause on rate hikes earlier this week. With inflation numbers cooling, the central bank decided to leave interest rates unchanged at the conclusion of its policy meeting, putting an end to a string of 10 consecutive rate hikes over the past year.
This, together with a slew of positive economic data, has meant that the S&P 500 has lately been on a rally. In fact, the benchmark is up about 15% so far in 2023, with the U.S. economy and job market having demonstrated greater resilience than expected.
At the same time, the Fed surprised many by suggesting that they could raise rates by another 50 basis points by the end of this year. In other words, inflation is indeed easing, but slowly and is far from over. Amid the muddle of contradictions, market participants are finding it difficult to size up prospects for the rest of 2023.
To play this situation, 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
Investors generally gauge a stock’s potential returns by examining earnings growth and valuation multiples. At the same time, it’s essential to measure the performance of such a stock relative to its industry or peers, or an appropriate benchmark.
If you see that a stock is underperforming on fundamental factors, it would be prudent to move on and find a better alternative. However, those outperforming their respective sectors in terms of price should be selected because they stand a better chance of providing considerable returns.
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 nine stocks that made it through the screen:
InterDigital, Inc. (IDCC - Free Report) : The company is a pioneer in advanced mobile technologies that enables wireless communications and capabilities. The 2023 Zacks Consensus Estimate for Wilmington, DE-based IDCC indicates 61.9% year-over-year earnings per share growth. InterDigital has a VGM Score of A.
Over the past 60 days, InterDigital saw the Zacks Consensus Estimate for 2023 move up 114.2%. It beat the Zacks Consensus Estimate for earnings in each of the last four quarters. IDCC shares have moved up 51.7% in a year.
PulteGroup, Inc. (PHM - Free Report) : The company engages in homebuilding and financial services businesses, primarily in the United States. Over the past 60 days, this Atlanta, GA-based firm saw the Zacks Consensus Estimate for 2023 move up 23.7%. PHM has a VGM Score of A.
PulteGroup’s expected EPS growth rate for three to five years is currently 16%, which compares favorably with the industry's growth rate of 11.9%. It has a trailing four-quarter earnings surprise of roughly 15.6%, on average. PHM shares have increased 103.9% in a year.
Caterpillar Inc. (CAT - Free Report) : Based in Irving, TX, Caterpillar is known for its iconic yellow machines and is the largest global construction and mining equipment manufacturer. CAT’s expected EPS growth rate for three to five years is currently 12%, which compares favorably with the industry's growth rate of 11.5%. Caterpillar has a VGM Score of B.
Notably, the 2023 Zacks Consensus Estimate for CAT indicates 27.5% year-over-year earnings per share growth. The company has a market capitalization of $125.4 billion. Caterpillar shares have gone up 27.1% in a year.
Ford Motor Company (F - Free Report) : Ford is one of the leading auomakers in the world, which manufactures, markets and services cars, trucks, sport utility vehicles, electrified vehicles, and Lincoln luxury vehicles. Over the past 60 days, this Dearborn, MI-based firm saw the Zacks Consensus Estimate for 2023 move up 16%. F has a VGM Score of B.
Ford 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 24.4%, on average. F shares have gained 28.4% in a year.
Urban Outfitters, Inc. (URBN - Free Report) : Based in Philadelphia, PA, Urban Outfitters is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gifts products. Over the past 60 days, this firm saw the Zacks Consensus Estimate for fiscal 2024 move up 10.9%. URBN has a VGM Score of B.
The fiscal 2024 Zacks Consensus Estimate for Urban Outfitters indicates 57.1% year-over-year earnings per share growth. It has a trailing four-quarter earnings surprise of roughly 12.2%, on average. URBN shares have increased 65.1% 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 Prudent Choices for Relative Price Strength Investors
As many had expected, the Federal Reserve finally put a pause on rate hikes earlier this week. With inflation numbers cooling, the central bank decided to leave interest rates unchanged at the conclusion of its policy meeting, putting an end to a string of 10 consecutive rate hikes over the past year.
This, together with a slew of positive economic data, has meant that the S&P 500 has lately been on a rally. In fact, the benchmark is up about 15% so far in 2023, with the U.S. economy and job market having demonstrated greater resilience than expected.
At the same time, the Fed surprised many by suggesting that they could raise rates by another 50 basis points by the end of this year. In other words, inflation is indeed easing, but slowly and is far from over. Amid the muddle of contradictions, market participants are finding it difficult to size up prospects for the rest of 2023.
To play this situation, 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
Investors generally gauge a stock’s potential returns by examining earnings growth and valuation multiples. At the same time, it’s essential to measure the performance of such a stock relative to its industry or peers, or an appropriate benchmark.
If you see that a stock is underperforming on fundamental factors, it would be prudent to move on and find a better alternative. However, those outperforming their respective sectors in terms of price should be selected because they stand a better chance of providing considerable returns.
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 nine stocks that made it through the screen:
InterDigital, Inc. (IDCC - Free Report) : The company is a pioneer in advanced mobile technologies that enables wireless communications and capabilities. The 2023 Zacks Consensus Estimate for Wilmington, DE-based IDCC indicates 61.9% year-over-year earnings per share growth. InterDigital has a VGM Score of A.
Over the past 60 days, InterDigital saw the Zacks Consensus Estimate for 2023 move up 114.2%. It beat the Zacks Consensus Estimate for earnings in each of the last four quarters. IDCC shares have moved up 51.7% in a year.
PulteGroup, Inc. (PHM - Free Report) : The company engages in homebuilding and financial services businesses, primarily in the United States. Over the past 60 days, this Atlanta, GA-based firm saw the Zacks Consensus Estimate for 2023 move up 23.7%. PHM has a VGM Score of A.
PulteGroup’s expected EPS growth rate for three to five years is currently 16%, which compares favorably with the industry's growth rate of 11.9%. It has a trailing four-quarter earnings surprise of roughly 15.6%, on average. PHM shares have increased 103.9% in a year.
Caterpillar Inc. (CAT - Free Report) : Based in Irving, TX, Caterpillar is known for its iconic yellow machines and is the largest global construction and mining equipment manufacturer. CAT’s expected EPS growth rate for three to five years is currently 12%, which compares favorably with the industry's growth rate of 11.5%. Caterpillar has a VGM Score of B.
Notably, the 2023 Zacks Consensus Estimate for CAT indicates 27.5% year-over-year earnings per share growth. The company has a market capitalization of $125.4 billion. Caterpillar shares have gone up 27.1% in a year.
Ford Motor Company (F - Free Report) : Ford is one of the leading auomakers in the world, which manufactures, markets and services cars, trucks, sport utility vehicles, electrified vehicles, and Lincoln luxury vehicles. Over the past 60 days, this Dearborn, MI-based firm saw the Zacks Consensus Estimate for 2023 move up 16%. F has a VGM Score of B.
Ford 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 24.4%, on average. F shares have gained 28.4% in a year.
Urban Outfitters, Inc. (URBN - Free Report) : Based in Philadelphia, PA, Urban Outfitters is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gifts products. Over the past 60 days, this firm saw the Zacks Consensus Estimate for fiscal 2024 move up 10.9%. URBN has a VGM Score of B.
The fiscal 2024 Zacks Consensus Estimate for Urban Outfitters indicates 57.1% year-over-year earnings per share growth. It has a trailing four-quarter earnings surprise of roughly 12.2%, on average. URBN shares have increased 65.1% 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.