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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, 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. 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 Scoreless 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:
Allegheny Technologies Incorporated (NYSE: ATI ): Headquartered in Pittsburgh, PA, Allegheny Technologies is a diversified specialty materials producer of titanium, nickel-super alloys, and zirconium. The firm has a VGM Score of B and a good earnings surprise history. It has a 75% track of outperforming estimates over the last four quarters at an average rate of 41.7%.
MEDNAX Inc (NYSE: MD ): MEDNAX is the nation's largest provider of neonatal, anesthesia, radiology, maternal-fetal, and pediatric physician services. Sporting a VGM Score of B, this Sunrise, FL-headquartered company's expected EPS growth rate for three to five years currently stands at 10%, comparing favorably with the industry's growth rate of 8.3%.
Broadridge Financial Solutions, Inc. (NYSE: BR ): A provider of technology-based outsourcing solutions to the financial services industry, Broadridge Financial Solutions has a VGM Score of B. Over 30 days, the Lake Success, NY-based company has seen the Zacks Consensus Estimate for FY 2018 and FY 2019 increase 8.6% and 9.2%, to $4.04 and $4.41 per share, respectively.
AllianceBernstein Holding LP (NYSE: AB ): Founded in 2000 and headquartered in New York, NY, AllianceBernstein is a global provider of investment management and research services. The partnership, which serves various institutional and high-end market participants, has a VGM Score of A and an enviable earnings surprise history. It surpassed estimates in three of the last four quarters.
Aaron's, Inc. (NYSE: AAN ): Headquartered in Atlanta, GA, Aaron's is a leading provider of sales and lease ownership, or rent-to-own (RTO), stores for retailing of furniture, consumer electronics, computers and home appliances and accessories throughout the U.S. and Canada. The 2018 Zacks Consensus Estimate for this company is $3.30, representing some 28.9% earnings per share growth over 2017. Next year's average forecast is $3.66, pointing to another 11% growth. Aaron's has a VGM Score of B.
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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