Missed the Rally? Grab 3 Off-the-Radar Stocks - Investment Ideas
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 light.
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 concern.
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 benchmarks.
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 time.
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 happen:
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 could.
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 section.)
3 Stocks to Compensate for Missed Opportunity
Research Wizard made the job easy for me to run a screen with the following parameters ??( click here to sign up for a free trial to the Research Wizard today ):
- 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 100,000: This picks stocks that have high liquidity and can be easily traded.
- Zacks Rank less than or equal to 2: Stocks with these ratings have historically witnessed solid price performance.
(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 screen:
Canadian Solar Inc. ( CSIQ ): 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 ( LOGI ): 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 ( NAT ): 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 Rank #2.
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 mentioned.
CANADIAN SOLAR (CSIQ): Free Stock Analysis Report
LOGITECH INTL (LOGI): Free Stock Analysis Report
NORDIC AMERICAN (NAT): Free Stock Analysis Report
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