Given the recent run-up in the market, here's a screen I've been
using recently for my own stock picking.
First, it focuses on the top Zacks Ranked Sectors and Industries.
Then it focuses on the Zacks Rank #1s, #2s and #3s, which are
Strong Buys, Buys and Holds, respectively. But then it selects the
outperforming stocks with the smallest percentage price change over
the last 4 weeks.
Why would I do something like that?
You've probably heard the old adage that roughly half of a stock's
price movement can be attributed to the group that it's in. And
that's true. In fact, oftentimes, even a mediocre stock in a top
group will outperform a top stock in a poor group for this very
Now, take a look at any top group. You'll see plenty of fantastic
stocks with some impressive price gains in there. But not every
stock in every group moves in lockstep at the exact same time. Some
will move more than others at any given time.
So by focusing on the stocks with the smallest percentage price
change with fundamentals that are just as good as those making the
biggest price change, you might find yourself getting into the
stocks ready to make the biggest potential catch-up move.
Here's how to set up that screen:
Best Zacks Ranked Sectors -- Best 8
We're screening for only those stocks with the best (lowest)
average Zacks Rank. With 16 sectors, the best 8 sectors give us
the best 50% of sectors.
Best Zacks Ranked Industries -- Best 132
Next step is to get only the best Zacks Ranked Industries coming
thru. Since there are 264 'X' or expanded industries we look at,
the best 132 will give us the best 50% of industries. But note
that only the industries that also happen to be in the top
sectors will get thru. If an industry is ranked as one of the
best but it's outside of the top sector rank, it will not get
Zacks Rank less than or equal to 3
Now the screen gets narrowed down even more by looking at only
the Zacks Rank #1s, #2s and #3s. No Sells or Strong Sells (Zacks
Rank #4s and #5s) allowed.
Price and Avg. Volume greater than or equal to $5 and
Only stocks over $5 with at least an average of 100,0000 shares
traded daily will be considered.
Relative % Price Change -- 4 Weeks greater than
This means we're screening for only those stocks that have
outperformed the market (S&P 500) over the last 4 weeks.
% Change in Price -- 4 Weeks: Bottom 50
Then finally we're scanning for the bottom 50 stocks with the
lowest percentage price change over the last 4 weeks. So while
all of these stocks have outperformed the market, they increased
in price less than their peers.
So each one of these stocks is in a top Sector and top Industry
within that Sector. This alone will tip the odds of success in your
favor by a great deal when you consider that the best Zacks Ranked
groups outperform the worst ones by a factor of 4 to 1.
Then by selecting those stocks with the best Zacks Rank along with
the best price performance over the last 4 weeks, you now have only
a list of winners from which to choose from.
And from that list of winners, we're selecting the ones that have
gained less than their peers on that list. Remember, these stocks
aren't 'dogs' or unresponsive stocks. Quite the contrary; they have
all outperformed the market. It just so happens that they increased
less than the others on the list. But because they are a top rated
stock in a top rated industry, we've singled these out as the ones
that could make the biggest move to 'catch-up' to the others.
It's an interesting screen that has generated a lot of great names.
Here are 5 from that list:
- Alliance Data Systems Corp.
- Gildan Activewear Inc.
- Lions Gate Entertainment Corp.
- Repligen Corp.
- World Acceptance Corp.
All great looking stocks that seem to have lots more upside in
store for them.
Get the rest of the stocks on the list and start putting this and
other ideas to the test. It can all be done with the Research
Wizard stock picking and backtesting software.
Sign up now for your two week free trial.
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:
ALLIANCE DATA (ADS): Free Stock Analysis Report
GILDAN ACTVWEAR (GIL): Free Stock Analysis
LIONS GATE ETMT (LGF): Free Stock Analysis
REPLIGEN (RGEN): Free Stock Analysis Report
WORLD ACCEPTANC (WRLD): Free Stock Analysis
To read this article on Zacks.com click here.