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.
On 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.
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, 4 weeks and 1 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 seven stocks that made it through the screen:
WellCare Health Plans Inc. WCG : Headquartered in Tampa, FL, WellCare Health offers government-sponsored managed care services through three segments: Medicaid Health Plans, Medicare Health Plans and Medicare PDPs. The company has a VGM score of "A" and an excellent earnings surprise history. It surpassed estimates in each of the last four quarters at an average rate of 59.23%.
H&R Block Inc. HRB : A provider of tax, accounting and business consulting services and products, H&R Block has a VGM score of "A". Over the past 30 days, the Kansas City, MO-based firm has seen the Zacks Consensus Estimate for fiscal years 2018 and 2019 (ending April) increase 10.5% and 9.6%, to $2.00 and $2.05 per share, respectively.
Moelis & Company MC : Moelis & Company is a leading independent investment bank that provides advisory services to a broad customer base. Headquartered in New York, NY, the firm offers strategic and financial advice to corporations, governments and financial sponsors. Moelis & Company has a VGM score of "A" and outperformed earnings estimates in the last four reported quarters.
Ciena Corp. CIEN : Ciena is a provider of optical networking equipment, software and services. Sporting a VGM score of "A", this Hanover, MD-headquartered company's expected EPS growth rate for 3 to 5 years currently stands at 15.80% -- comparing favorably with the industry growth rate of 15.10%.
Patrick Industries Inc. PATK : Headquartered in Elkhart, IN, Patrick Industries is a leading supplier of predominantly interior components to the recreation vehicle, manufactured housing, and industrial markets. The 2017 Zacks Consensus Estimate for this company is $4.17, representing some 14.7% earnings per share growth over 2016. Next year's average forecast is $4.61, pointing to another 10.5% growth. Patrick Industries has a VGM score of "A".
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.
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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 .
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Ciena Corporation (CIEN): Free Stock Analysis Report Moelis & Company (MC): Free Stock Analysis Report WellCare Health Plans, Inc. (WCG): Free Stock Analysis Report H&R Block, Inc. (HRB): Free Stock Analysis Report Patrick Industries, Inc. (PATK): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research