U.S. stock markets have been rallying since the selloff took
center stage in the beginning of the year. Were you able to spot
the turning point and take position in stocks that caught up with
the uptrend? If not, are you repenting over the missed chance of
buying stocks that you knew would stand out?
If so, you are not regretting alone. Your disappointment is a
common psychological factor in stock investing.
Even when you have tracked a stock for long, indecision can muddle
your ability to seize the right opportunity. Before you take the
plunge, others get to know the hidden potential of that stock and
enter into it, leaving no room for you to make a huge profit.
But this isn't the end of your investment prospects; move on and
spot the next big break. Check out other potential gainers that
have so long been overlooked, and this time, don't miss the boat.
I'll share a trick to hand-select stocks for immediate buying. But
before that, let's take a quick look at what's making these stocks
running up faster than you predicted and pushing them out of reach.
Are Fundamentals Getting Any Better?
Severe winter has been blamed for most of the weak economic data so
far this year. If this is the real reason, the drag on growth
should be temporary as businesses will get back to normal as the
weather improves. It is perhaps this optimism that is driving the
recent market rally.
But the weather theory will not last long. With temperatures
returning to more normal levels, several dark spots are coming to
Particularly, the largest one-month drop in U.S. homebuilder
confidence in February makes it clear that the problem in the
economy is deeper than what the aberrant weather could cause. High
costs now appear to be the root of this slump, which is not a good
indication for the economy.
The winter chill literally froze auto sales data in January and the
much-expected pickup in February hasn't shown up at least in the
first half of the month. Is weather still the dampener or does the
full-month data have a surprise in store?
Moreover, the weakness in U.S. consumer confidence was still
palpable in early February. This hints at factors other than the
weather that are holding back consumers.
On a positive note, very impressive manufacturing data in February
-- the highest level in nearly four years -- should spur economic
momentum. The five-year low jobless rate of 6.6% in January should
also add to the strength. However, a lag in wages remains a
Bottom line? While bad weather is largely responsible for the
economic woes, one cannot ignore the fundamental weakness. So
sustainability of this rally is highly uncertain.
Fed Tapering: Growth Catalyst?
Another reason for the recent rally could be the certainty over the
Fed's winding down of its bond-buying program that signals a
strengthening of the economy. The uncertainty related to tapering
in the beginning of the year held back the momentum of the
On the other hand, the speculation over tapering and consequent
drying up of liquidity took the luster off emerging markets,
leading to an indirect pressure on U.S. stocks.
Now, the relatively safe status of the U.S. economy is drawing
investors' attention. This has no doubt aided the recent upturn on
the bourses. Hopefully, this catalyst will be in action for some
Eyeing Fresh Opportunities
You can't get the winners back at a price that you found
attractive, but you can find the potential gainers faster than
others and take advantage of this market rally. Here are the
features that you should look for to make it
Strong Earnings Estimate Revision:
This is the first thing to check, as it indicates that the analysts
have become bullish on the earnings potential of these stocks. This
should ultimately translate into price appreciation, even if the
market loses luster.
Solid Earnings Growth Expectation:
A significant earnings growth expectation will confirm that the
analysts are revising estimates higher over what these companies
reported last year. It rules out the chance of the initial estimate
for the year remaining below the last year's actual.
Muted Price Reaction:
This is the next important criterion which will help you narrow
down the list of stocks to those that saw strong estimate revisions
but were neglected by investors.
Positive Relative Price Change:
This would help you to further zoom in on stocks that are doing
better than the S&P 500 year-to-date. If this trend continues,
these stocks should yield at least as much as the S&P 500
Favorable Zacks Rank:
Good markets or bad, stocks with a Zacks Rank #1 (Strong Buy) or #2
(Buy) generally outperform. So lock your choice with these ratings
which have a proven history of success.
(To learn more about the Zacks Rank, visit our
Zacks Rank Education
3 Stocks to Compensate for Missed Opportunity
made the job easy for me to run a screen with the following
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Change in this year's estimate over 4 weeks greater than or
equal to 25%:
Stocks with such a strong upward earnings estimate revision
generally experience the greatest price increases.
This year's estimated year-over-year earnings growth greater
than or equal to 25%:
This ensures that earnings expectation is at least one fourth
higher than the prior year's actual.
Price change over 4 weeks less than or equal to 1:
This selects stocks that have not received investors' attention
over the last month.
Price change over one week less than or equal to 1:
This captures stocks unnoticed by investors over the last week
despite a stock market rally.
Relative price change greater than or equal to 1:
Stocks with this feature have performed better than or in line
with the S&P 500 year-to-date.
Average 20-day share volume greater than or equal to
This picks stocks that have high liquidity and can be easily
Zacks Rank less than or equal to 2:
Stocks with these ratings have historically witnessed solid price
(See the performance of Zacks' portfolios and strategies here:
About Zacks Performance
Here are the top 3 among the 5 stocks that passed through the
Canadian Solar Inc.
): Headquartered in West Guelph, Canada, this Zacks Rank #1
manufacturer and seller of solar power products is my top pick.
Change in F1 Estimate (4 weeks) = 118.7%
This Year's Estimated Earnings Growth = 332.1%
Price Change (4 Weeks) = -8.1%
Price Change (1 Week) = -1.0%
Relative Price Change = 32.2%
Average Volume = 42,34,443
Logitech International SA
): This Zacks Rank #1 hardware and software developer comes as my
second choice. It is based in Morges, Switzerland.
Change in F1 Estimate (4 weeks) = 104.0%
This Year's Estimated Earnings Growth = 142.9%
Price Change (4 Weeks) = -2.2%
Price Change (1 Week) = -1.5%
Relative Price Change = 18.2%
Average Volume = 10,17,493
Nordic American Tankers Limited
): This tanker company, which is involved in acquiring and
chartering double-hull tankers, is my third choice. The company is
headquartered in Hamilton, Bermuda and currently carries a Zacks
Change in F1 Estimate (4 weeks) = 62.2%
This Year's Estimated Earnings Growth = 79.7%
Price Change (4 Weeks) = -11.0%
Price Change (1 Week) = 0.5%
Relative Price Change = 1.9%
Average Volume = 13,94,839
Sparkling Stocks Can't Hide for Long
Timing is the key in this strategy. The faster you take position,
the more you gain. Keep in mind, however, that you can't be the
first one to apply this strategy and gain the most. So if your
shortlisted stock doesn't offer you the minimum price, don't
regret. You will not lose if you buy it at an even higher price.
Then again, if you procrastinate, you lose.
Want More of Our Best Recommendations?
Zacks Executive VP, Steve Reitmeister, knows when key trades are
about to be triggered and which of our experts has the hottest
hand. Then each week he hand-selects the most compelling trades and
serves them up to you in a new program called Zacks Confidential.
Disclosure: The author has no positions in any stocks
CANADIAN SOLAR (CSIQ): Free Stock Analysis
LOGITECH INTL (LOGI): Free Stock Analysis
NORDIC AMERICAN (NAT): Free Stock Analysis
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